STATEMENT ON CORPORATE GOVERNANCE

Transcription

1 ANNUAL REPORT UMW OIL & GAS CORPORATION BERHAD STATEMENT ON CORPORATE GOVERNANCE The Board of Directors ( Board ) of UMW Oil & Gas Corporation Berhad ( UMW-OG or Company ) is committed to advocate the fundamental principles of corporate governance within UMW-OG Group. This Corporate Governance statement provides an insight into corporate governance practices of the Group and to report the Group s compliance with the Principles and Best Practices of Malaysian Code on Corporate Governance 2012 throughout the financial year ended 31 December Notably, UMW-OG was listed No. 27 out of the top 100 Malaysian Public Listed Companies ( PLCs ) with good corporate governance disclosures at the Minority Shareholder Watchdog Group s Malaysia-ASEAN Corporate Governance Transparency Index, Findings and Recognition Award Ceremony 2016 held on 15 December The Group adopts the following recommendations, requirements and guidelines: Bursa Malaysia Securities Berhad s ( Bursa Malaysia ) Main Market Listing Requirements ( MMLR ); Corporate Governance Guide ( CG Guide ); Malaysian Code on Corporate Governance 2012 ( Code ); The Green Book on Enhancing Board Effectiveness by the Putrajaya Committee on Government-Linked Companies ( GLCs ) High Performance ( PCG ); and International best practices and standards on corporate governance. With the Group s significant presence in the countries it operates, the Group also monitors and abides by the guidelines of the relevant regulators and authorities. 1. ESTABLISH CLEAR ROLES AND RESPONSIBILITIES 1.1 Clear functions of the Board and Management UMW-OG Group applies the following Company s Corporate Governance Framework, which provides an overview of the corporate governance processes and responsibilities within the UMW-OG Group: BOARD EXECUTIVE COMMITTEE STAKEHOLDERS BOARD OF DIRECTORS OF UMW OIL & GAS CORPORATION BERHAD BOARD AUDIT COMMITTEE DRILLING SERVICES BOARD RISK MANAGEMENT COMMITTEE PRESIDENT MANAGEMENT COMMITTEE BOARD NOMINATION COMMITTEE MANAGEMENT SUB-COMMITTEES Management Audit Committee Management Risk Management Committee Management Whistle-Blowing Committee Management Banking Committee Business Continuity Management Committee Management Sustainability Committee Management Tender Committee CORE BUSINESSES OF THE GROUP BOARD REMUNERATION COMMITTEE OILFIELD SERVICES BOARD WHISTLE- BLOWING COMMITTEE Setting the tone from the top, the Board is responsible for the oversight and sets the UMW-OG Group s overall strategy, core values and adopts proper standards to ensure the UMW-OG Group operates with integrity and complies with the relevant rules and regulations. Specific responsibilities of the Board are delegated to the respective Board Committee in accordance with their respective Terms of Reference ( TOR ), while specific powers are delegated to respective Board Committee, the President and the Management.

2 UMW OIL & GAS CORPORATION BERHAD 62 ANNUAL REPORT 2016 STATEMENT ON CORPORATE GOVERNANCE The Company s Corporate Governance Framework is supported by the Financial Limit Authority Guidelines ( FLAG ) which sets out the respective authority limits including those reserved for the Board s approval and those which the Board may delegate to the Board Committees, the President, Management Committees and Management. The Board, as and when required, will continue to review, deliberate and enhance the Company s Corporate Governance Framework and FLAG to ensure its relevance and ability to meet future challenges. Each of the subsidiaries within the UMW-OG Group has its functional Board chaired by the President providing direct oversight over the subsidiary company s business practices and activities. Aligned with UMW-OG, each subsidiary of the UMW-OG Group has adopted the Company s Corporate Governance Framework and FLAG. The Management Committee chaired by the President met regularly to deliberate on the overall management of the Group with direct line of sight of operations and activities with reports from the following divisions and departments: Drilling Services Oilfield Services Finance and Accounts Quality Health Safety and Environment Supply Chain Management Corporate Development and Sustainability Business Development Human Capital Secretarial Legal Corporate Transformation Office Drilling Academy With two monthly alternating updates from Risk Management, Corporate Communications & Investor Relations and Compliance. During the year ended 2016, the Management sub-committees met as and when required and as scheduled respectively to effectively discharge its functions in tandem with the requirement of the Group s activities and business practices. 1.2 Clear roles and responsibilities In discharging the Board s fiduciary and leadership functions, the Board is charged with leading the Company in an effective and responsible manner. Amongst the key responsibilities of the Board are: setting the corporate vision and mission, objectives and strategic direction of the Group; overseeing and evaluating the conduct of the Group s businesses; identifying principal risks and ensuring that risks are properly managed; reviewing the adequacy and integrity of the Group s internal controls; and human resource planning in particular succession plan. The Board reserves full decisionmaking powers on the following matters: material acquisitions and disposal of assets; investments in major projects; authority levels; treasury policies; risk management policies; key human resource issues; and conflict of interest issues relating to a substantial shareholder or a Director. The following describes how the Board discharged its key fiduciary and leadership functions in 2016: Reviewing and adopting Company s strategic plan The Board reviews, challenges and approves the strategic plan for UMW- OG Group and is responsible for monitoring the implementation of the strategic plan by the Management. The Management presented to the Board its recommended strategy and Business Plan for the ensuing year at a dedicated session for the Board s review and approval. Together with the Management, the Board deliberated the Company s mission and vision, considered an overview of the oil and gas industry outlook and the highlighted business strategy and direction of the UMW-OG Group, focusing on cost savings, stabilising revenue and people development. Key considerations by the Board were rigs utilisation, charter rates and financial analysis of Group s performance, key performance targets, budget, UMW- OG Group s activities highlights including performance by segments and by Drilling Services and Oilfield Services. The Board and also Board Executive Committee consistently challenged the Management in the development of the UMW-OG Group s Business Plan that align with the Group s mission and sustainability strategy. The Board and the Board Committees actively monitored the Management s execution of approved strategic plans as well as the transparency and adequacy of internal and external communication of the strategy. Overseeing the conduct of the Company s business The President is responsible for the day-to-day management of the business activities and operations of the UMW-OG Group. He is supported by a Management Committee and Management Sub-Committees. The Board set the key performance targets of the President which is cascaded down to the Management. During the year 2016, the Board approved the formation of the Board Executive Committee. Governed by its TOR, this Committee support an oversight role of reviewing, evaluating and recommending on matters pertaining to strategic direction and Project(s), including investment, divestment, merger, acquisition, disposal of asset(s) or business(es) that require approval of the Board.

3 ANNUAL REPORT UMW OIL & GAS CORPORATION BERHAD On a monthly basis, execution of strategy and challenges were reported to the Board and were reported in ten sittings of the Board Executive Committee during the year Head of Divisions and Chief Financial Officer were invited to present on their respective reports to the Board and Board Executive Committee. Board deliberated on Investor Relations Update noting the Company s share price movements and summary on analysts and/ or research houses. President and Chief Financial Officer presented quarterly for the Board s notation on the QHSE performance report of the Group and the financial performance of the Group respectively. At each scheduled Board meeting, the Board reviews the report from the President on the market outlook and progress of the business operations of the Group. The Board also reviews the report from the Chief Financial Officer on the financial performance of the Group. The Risk Management and Insurance Division presents the Enterprise Risk Management Report and Regulatory Compliance Report to the Board Risk Management Committee on a quarterly basis and as part of the Group s commitment to deliver sustainable value, the Board reviews and approves the key risks faced by the Group, the potential impact and likelihood of risks occurring, the effectiveness of existing controls and the risk action plans being taken to manage the risks to the desired levels, on half-yearly basis. The Board also assesses the Group s performance in quality, health, safety and environment compliance on a quarterly basis. The recommendations and significant issues deliberated by the Board Audit Committee, Board Nomination Committee, Board Remuneration Committee, Board Executive Committee, Board Risk Management Committee and Board Whistle-Blowing Committee are reported by the respective Chairman of the Committee to the Board for deliberation and approval. In addition, the minutes of these Board Committees are circulated and tabled to the Board for information. Board Committee The Board has delegated some of its responsibilities to Board Committees. The Board has established six Board Committees, namely the Board Audit Committee, Board Nomination Committee, Board Remuneration Committee, Board Executive Committee, Board Risk Management Committee and the Board Whistle-Blowing Committee, (collectively referred to as Board Committees ), the primary functions of which are to assist the Board in overseeing the affairs of the Group and these Board Committees have been entrusted with specific responsibilities and authority. The authority and the functions of these Board Committees are clearly defined in their respective TOR, which are available on the Company s website at com The abovementioned Board Committees are authorised to examine specific issues and report to the Board with their recommendations. The responsibility of decisions on all matters ultimately lies with the Board as a whole. The Board receives regular reports on the respective Board Committees proceedings and deliberations. On matters reserved for the Board and where Board Committees have no authority to make decisions, recommendations are highlighted in their respective reports for the Board s deliberation and endorsement. (i) Identifying principal risks and ensuring the implementation of appropriate systems to manage them During the year 2016, the Board approved the change of name of the Board Investment & Risk Management Committee to Board Risk Management Committee ( BRMC ) and revised its TOR. On a quarterly basis, the Management Risk Management Committee considered the risk profiles and Top Risks of the UMW-OG Group, which were then tabled to the BRMC. Upon the recommendation of BRMC, the Top Risks and Risk Action Plans were tabled to the Board. With the formation of the Compliance Department, the Board approved the Compliance Department framework and its activities. During the year 2016, UMW-OG Group conducted Internal Control Risk Assessment and Review which provided for periodic self-assessment on compliance, compliance testing mechanism and conducted internal surveys to assess control environment and tone at the top. The Group updated the centralised regulatory compliance register for tracking and monitoring. (ii) Succession planning The Board Nomination Committee is responsible for identifying, evaluating and recommending to the Board, suitable candidates to fill board vacancies at UMW-OG level as well as within its group of companies. The Board Nomination Committee also reviews the appointment, dismissal, transfer and promotion of senior executives in UMW-OG Group. The recommendations of appointment of vacancies in the Board within UMW-OG Group made by the Board Nomination Committee are then tabled to the Board for approval. In 2016, the Board Nomination Committee considered the appointment of directors of subsidiary companies within UMW-OG Group. In formulating its recommendations, the Board Nomination Committee considered the findings of the evaluation process, the current composition of the subsidiary company s Board, the attributes and qualifications that should be represented at the Board and whether the candidate can provide such additional attributes, capabilities and qualifications.

4 UMW OIL & GAS CORPORATION BERHAD 64 ANNUAL REPORT 2016 STATEMENT ON CORPORATE GOVERNANCE (iii) Overseeing the development and implementation of a communication policy for the Company UMW-OG Group is committed to fulfil its obligation to provide accurate and timely information about UMW- OG Group, its performance, financial condition, operations, corporate developments and governance as well as current prospects to shareholders, stakeholders and the public in general. The Group believes in providing fair and accurate information on the Group so that investors and potential investors can make properly informed investment decisions and other can have a balanced understanding of the Company and its objectives. During the year, the Board reviewed the Corporate Disclosure Procedures of the Group and approved the consolidated UMW-OG s Corporate Disclosure Policy which provides a framework of reference of the Group s corporate disclosure processes and procedures. All officers and employees of the Group are bound by the UMW-OG s Disclosure Policy and Procedures. In 2016, UMW-OG Group carried out its Corporate Communications and Investor Relations activities in accordance with the UMW-OG Disclosure Policy and Procedures. Further details on activities undertaken in FY2016 is provided in page 77 of this Annual Report. (iv) Reviewing the adequacy and integrity of the management information and internal control of the Company The Board has fiduciary responsibilities relating to corporate accounting, system of internal control and risk management processes and management and financial reporting practices of UMW- OG Group. Details pertaining to the Company s internal control system and its effectiveness are available in the Statement of Risk Management and Internal Control of this Annual Report. 1.3 Formalised ethical standards through code of conduct The Company has in place a Code of Business Conduct and Ethics. This code consists of established specific rules and regulations to govern the conduct of its employees relating to his/her employment. Employees are expected to abide all laws in conducting business and to always act with honesty, integrity, loyalty, trustworthiness, fairness and responsibility. Such code may be modified, added to, substituted for or otherwise amended from time to time as the Board deems fit. Infringement of this code may lead to disciplinary action. Board Whistle-Blowing Committee ( BWBC ) In promoting the highest level of professionalism and ethics in the conduct of the Group s businesses, it is the Group s policy to welcome disclosures of suspected wrongdoings that include mismanagement, malpractices, corrupt practices, fraud, conflict of interest, abuse of authority or breach of any laws and regulations by any member of its staff and management. The Whistle-Blowing Policy which was approved by the Board on 19 May 2014, provides employees with accessible avenue to report wrongdoings at the earliest opportunity, in an appropriate manner and without fear of reprisal. The primary objectives of the BWBC include: (i) reviewing, investigating and disposing complaints (in consultation with the Chairman of the Board and the President) received against any member of the Board of the Group, senior-most executive personnel of the Group (holding job grade 20 and above) and all Heads of Divisions and Heads of Strategic Business Units. (ii) Reviewing and disposing all complaints received against all other employees of the Group, upon receiving recommendation or report from the Management Whistle- Blowing Committee ( MWBC ). The BWBC did not hold any meeting during the financial year.

5 ANNUAL REPORT UMW OIL & GAS CORPORATION BERHAD The composition of the BWBC is as follows: Name of Directors Fina Norhizah binti Hj. Baharu Zaman Badrul Feisal bin Abdul Rahim Razalee bin Amin Dato Afifuddin bin Abdul Kadir Designation Chairman Independent Non-Executive Director Non-Independent Non-Executive Director Independent Non-Executive Director Independent Non-Executive Director Date of Appointment Date of Resignation Meeting Attendance 21 July March 2017 Nil 1 October 2015 N/A Nil 21 July 2014 N/A Nil 21 July 2014 N/A Nil Whistle-Blowing Policy is available online at Strategies that promote sustainability The Board s commitment to achieve highest standards of corporate governance across the UMW-OG Group is also reflected in the Board s promotion of sustainability practices within the Group. A summary of the Group s strategies that promote sustainability is provided in the Sustainability Report of this Annual Report. 1.5 Access to information and advice Directors have access to advice and support of the Company Secretary and the Secretarial Division to assist the Directors where required. The Directors may also interact and seek advice from the Management on issues that may require the Management s clarification or information. The Board may seek independent professional advice in discharging its duties for the UMW-OG at the Company s expense. To effectively disseminate Board and Board Committee s papers to the Directors, the agenda and papers are circulated electronically via upload onto the Director s ipad for convenient reference by the Directors. In 2016, an average of five calendar days was recorded for the distribution of Board and Board Committee s papers save for Special Board Meetings for which shorter time frame has been agreed with the Board. Senior management and key personnel as well as professional and external advisors were from time to time invited to attend Board and Board Committee meetings to brief the Board or Board Committee to assist in clarifications of issues on the subject matter concerned. The Group has in place a system of follow-up, review and reporting of actions taken by the Management on the decisions of the Board or the Board Committees after each respective meeting. 1.6 Qualified and competent Company Secretary The Company Secretary, as the Head of Secretarial Division, has legal and secretarial qualifications and is qualified to act as Company Secretary under Section 235 of the Companies Act 2016 ( the Act ). The Board is supported by an experienced, competent and knowledgeable Company Secretary who works closely with the President and senior management to ensure effective information flow within the Board and the relevant Board Committees. The Company Secretary advises the Board in relation to the Company s Board Charter, Board Committees TOR, Board procedures and compliance with the Code, legislations and relevant regulatory requirements. The Company Secretary is responsible to ensure deliberations and resolutions of the Board and relevant Board Committees are accurately minuted and thereafter communicated to the relevant Management for followup actions. The follow-up actions or progress of the Board or relevant Board Committees recommendations or decisions are updated by the Company Secretary. 1.7 Board Charter The Board oversees and sets the tone for, the Group s overall strategy, core values and adopts proper standards to ensure the Group operates with integrity and complies with the relevant rules and regulations. In discharging its duties and responsibilities, the Board is guided by its Board Charter. The Board Charter which was adopted by the Board on 30 April 2014 sets out the roles and responsibilities of the Board in accordance with the principles outlined in the Code and ensures that all Board members acting on behalf of the Company are aware of their duties and responsibilities as Board members and

6 UMW OIL & GAS CORPORATION BERHAD 66 ANNUAL REPORT 2016 STATEMENT ON CORPORATE GOVERNANCE the various legislations and regulations affecting their conduct and that the principles and practices of good corporate governance are applied in all their dealings. The Board Charter acts as a source of reference for Directors in relation to the Board s role, power, duties and functions. It also outlines the Board s rights to establish committees to assist in the discharge of its duties and responsibilities. A copy of the Board Charter is available on the Company s official website at 2. STRENGTHEN COMPOSITION 2.1 Nominating Committee The Board Nomination Committee ( NOMCOM ) is responsible for identifying, evaluating and recommending to the Board, suitable candidates to fill board vacancies at the Company level as well as within the Group. The NOMCOM is also responsible for the appointment, dismissal, transfer and promotion for senior-most executives in the Group (for job grade CSM-22 and above). Apart from assisting the Board to carry out annual reviews on the mix of skills and experience and other qualities, including core competencies, which the Non-Executive Directors bring to the Board, the NOMCOM also carries out the process of evaluating the effectiveness of the Board as a whole, the performance and contribution of the Chairman and individual Directors, including Independent Non-Executive Directors, as well as the President of the Company, and identify areas for improvement. Nominations may come from a wide variety of sources, including Directors, senior employees of the Group, customers, shareholders, industry associations, recruiting firms and others. The NOMCOM is made up entirely of Non-Executive Directors. The composition of which is as per the table below. The NOMCOM met six times during the financial year. The composition of the NOMCOM and the respective attendance record of meetings for the financial year ended 31 December 2016 are as follows: Name of Directors Dato Afifuddin bin Abdul Kadir Dr. Leong Chik Weng Razalee bin Amin Fina Norhizah binti Hj. Baharu Zaman Designation Chairman Independent Non-Executive Director Non-Independent Non-Executive Director Independent Non-Executive Director Independent Non-Executive Director Date of Appointment Date of Resignation Meeting Attendance 13 May 2013 N/A 6/6 13 May February /6 13 May 2013 N/A 6/6 15 August March /6 NOMCOM s TOR is available online at

7 ANNUAL REPORT UMW OIL & GAS CORPORATION BERHAD Summary of Activities The NOMCOM carried out the following activities during the financial year ended 31 December 2016: (i) Reviewed and recommended the following for Board s approval: Extension of contract of service for senior-most executive positions; Directors retiring by rotation and reelection to the Board; Appointment of Director to Board and Board Committees; Appointment of Directors on the boards of companies within the Group; Proposal on Revised Questionnaires on Board Evaluation for UMW-OG Board and Board Committees, Board (self and peer assessment) and President; Setting Key Performance Indicators ( KPIs ) for the President; Assessment of the performance of the President; and Annual assessment and review of effectiveness of Board, Board Committees, individual Director and the President. (ii) Conducted an assessment of the effectiveness of the Board as a whole, Board Committees and the contributions of individual Directors including the President and recommended improvement plan, where applicable. (iii) Considered appointment of Directors on the boards of companies outside the Group time commitment and conflict of interest issues. Appointment of Directors The NOMCOM is responsible for identifying, evaluating and recommending to the Board, suitable candidates to fill board vacancies at the Company level as well as the Group. The NOMCOM considers the required mix of skills, experience and diversity, including gender, ethnicity and age, where appropriate. The NOMCOM, also consider the Director s qualifications, the Director s contributions to the Group and the overall composition of the Board with the goal of creating a balance of knowledge, experience and diversity aligned with the long-term interest of its shareholders. Nominations may come from a wide variety of sources, including Directors, senior employees of the Group, customers, shareholders, industry associations, recruiting firms and others. The Company Secretary has the responsibility of ensuring that relevant procedures relating to the appointment of new Directors are properly executed. Newly-appointed Directors are required to undergo familiarisation programmes and briefings to get a better understanding of the Group s operations and the overall industry as well as the relevant regulations and governance requirements. Reelection of Directors All Directors including the Executive Director are subject to retirement by rotation at least once in every three years and are eligible for reelection. In accordance with Article 107 of the Articles of Association of the Company, at least 1/3 of the Directors shall retire from office at each annual general meeting, provided always that all Directors shall retire from office once at least in each three years as stipulated under Paragraph 7.26(2) of the MMLR. The retiring Directors being eligible for reelection, may offer themselves for reelection. Any new Director appointed during the financial year to fill a casual vacancy or as an addition to the existing Directors shall only hold office until the next Annual General Meeting ( AGM ) of the Company and shall then be eligible for reelection as stipulated under Article 113. At the forthcoming AGM of the Company, the following Directors will retire and are eligible for reelection: 1. Pursuant to Article 107 of the Company s Articles of Association Cheah Tek Kuang Rohaizad bin Darus 2. Pursuant to Article 113 of the Company s Articles of Association Dato Abdul Rahman bin Ahmad The abovenamed Directors who are due for reelection at the forthcoming AGM on 15 May 2017, have been evaluated by the NOMCOM and approved by the Board. Further, the abovenamed Directors have met the Board s expectations and continued to perform in an exemplary manner as demonstrated by their contributions to the Board s deliberations. Diversity The UMW-OG Group does not practice gender nor age or ethnicity discrimination, neither at the management level nor at the Board level. For the year ended 2016, there was woman representation on the Company s Board. The Group also has women representation on management and the Boards of subsidiary companies. The wide spectrum of skills, experiences and diversity in terms of gender, ethnicity and age has given an added strength in terms of leadership and management. Senior Independent Non-Executive Director Dato Afifuddin bin Abdul Kadir is the Senior Independent Director to whom concerns pertaining to the Group may be conveyed by the shareholders and the public. He has the role of supporting the Chairman and ensuring that all the Independent Directors have an opportunity to provide their views and comments on the affairs of the Group. All concerns relating to the Group can be conveyed to him via his address at afi. abdulkadir@gmail.com

8 UMW OIL & GAS CORPORATION BERHAD 68 ANNUAL REPORT 2016 STATEMENT ON CORPORATE GOVERNANCE 2.2 Develop, maintain and review criteria for recruitment and annual assessment of directors The Board had completed the annual performance evaluation for the financial year ended 31 December 2016 based on a set of updated questionnaires that evaluated on the Board and the Board Committees performances, and the respective activities undertaken including the performances and contributions of the Chairman, individual Directors and the President. 2.3 Remuneration policies The Board Remuneration Committee ( REMCOM ) on the other hand is responsible for developing the UMW- OG Group s remuneration policy framework and recommending the remuneration package of Directors and members of the senior management to the Board. The REMCOM met twice during the financial year. The composition of the REMCOM and the respective attendance record of meetings for the financial year ended 31 December 2016 are as follows: Name of Directors Dr. Leong Chik Weng Dato Afifuddin bin Abdul Kadir Cheah Tek Kuang Dato Ibrahim bin Marsidi Designation Chairman Non-Independent Non-Executive Director Independent Non-Executive Director Independent Non-Executive Director Independent Non-Executive Director Date of Appointment Date of Resignation Meeting Attendance 13 May February /2 13 May 2013 N/A 2/2 13 May 2013 N/A 2/2 13 May 2013 N/A 2/2 REMCOM s TOR is available on the Company s website at Directors Remuneration The Board as a whole, upon the recommendation of the REMCOM determines the remuneration package and reward structure of the Executive Director and Non-Executive Directors. Directors do not participate in any discussions or decisions concerning each individual s remuneration. In the case of the President/Executive Director, the remuneration is structured to link rewards to corporate and individual performance through Key Performance Indicators comprising fixed and performancebased rewards. The remuneration of the President/Executive Director includes salary, emoluments and benefits-in-kind. The level of remuneration of the Non- Executive Directors reflects the experience and level of responsibilities undertaken by the Director concerned. The Non- Executive Directors are paid annual fees and attendance allowances (in accordance with the number of meetings attended). In addition, the Non-Executive Directors are also provided with benefits-in-kind. Non-Executive Directors fees are determined by a fixed sum and approved through an ordinary resolution in a general meeting. The REMCOM carries out reviews when appropriate and refers to remuneration surveys and consultants to assist in determining the appropriate level of reward, which is competitive and consistent with the corporate objectives. This is necessary in order to attract and retain professionals with the qualities needed to manage the Group successfully.

9 ANNUAL REPORT UMW OIL & GAS CORPORATION BERHAD Details of the total remuneration of the Directors of UMW-OG for the financial year ended 31 December 2016 are provided in page 159 of the Annual Report. Indemnification of Directors and Officers Directors and Officers are indemnified under a Directors and Officers Liability Insurance, up to RM100 million for any one claim in aggregate, against any liability incurred by them in discharging their duties while holding office as Directors and Officers of the Company. However, the insurance does not provide coverage where there is negligence, default, breach of duty or breach of trust proven against the Directors or Officers. 3. REINFORCE INDEPENDENCE 3.1 Annual assessment of independence The independence of UMW-OG s Directors is measured based on the test of independence prescribed under the MMLR that he/she is independent of management and free from any business or other relationship which could interfere with the exercise of independent judgement or ability to act in the best interest of UMW-OG Group. This test is carried out before the appointment of Directors and reaffirmed annually by Independent Non- Executive Directors by self-assessment of independence by completion of the Confirmation of Independence Form. Annually, the review of Directors independence is also form part of the Director s performance evaluation. 3.2 Tenure of independent director In line with the recommendations of the Code, the Board has implemented a nine-year tenure limit for Independent Directors, which has been incorporated in the Board Charter, whereupon the completion of a cumulative term of nine years, the Independent Director may continue to serve the Board subject to the Director s redesignation as a Non-Independent Director or remain designated as an Independent Director with shareholders approval. 3.3 Shareholders approval for reappointment as Independent Non- Executive Director after a tenure of nine years At present, none of the Independent Directors has served more than nine years on the Board. 3.4 Independence and conflict of interest There is sufficient independent element on the Board to ensure the Independent Directors take on a crucial role as far as corporate accountability is concerned by providing independent view, advice and judgement to ensure a balanced and unbiased decision-making process. The Non-Executive Directors are independent of management and are free from any business relationship which could materially interfere with the exercise of their independent judgement. None of the Directors are related to one another. The Directors are required to declare potential or actual conflict of interest in any transaction prior to any deliberation on matters before the Board. Where issues involve conflict of interest, the interested Directors shall abstain from discussion or voting on the matter. 3.5 Trading of UMW-OG shares by Directors and principal officers The Company has in place the process for preparation of announcements and dissemination of the announcements to Bursa Malaysia in relation to trading in Company s securities by UMW-OG s Directors and the principal officers outside the closed period to ensure compliance with the requirements of the relevant regulatory authorities. The Company Secretary serves advance notices on quarterly basis to the Directors and principal officers on the applicable closed periods for trading in the Company s shares. 3.6 Separation of positions of the Chairman and CEO The Board believes in and practises a separation of duties and responsibilities between the Chairman and the President to ensure a clear segregation of responsibility and accountability, proper balance of authority and greater capacity for independent decisionmaking. The roles and responsibilities of the Chairman and the President are clearly defined in ensuring the smooth running of the Company s business and operations. The Chairman s primary role is to lead the Board. He sets the tone for Board discussions and at the same time ensures high integrity and effectiveness of the Board as a whole. He conducts Board meetings and ensures that meetings proceed in an orderly manner. The Chairman encourages active participation of Board members in discussions and provides reasonable time for discussion of complex issues under review. Decisions reached at meetings reflect the consensus of the whole Board and not the views of any individual or group. The Chairman ensures and facilitates the flow of information between Management and the Board and that information relating to issues on the agenda is disseminated to all Directors well before deliberation at Board meetings.

10 UMW OIL & GAS CORPORATION BERHAD 70 ANNUAL REPORT 2016 STATEMENT ON CORPORATE GOVERNANCE The President on the other hand is responsible for making and ensuring the implementation of broad policies as approved by the Board and reports to and discusses material matters including regulatory developments and strategic projects with the Board. The President is responsible for the day-today management of the business and operations of the Group. The President is supported by the Management Committee who meets regularly and other committees established under the Corporate Governance Framework. There is therefore, a natural separation of management and governance leading to a balance of responsibility and authority. Though separated, their respective functions are mutually interdependent for efficient and effective execution of duties and responsibilities respectively. 3.7 Composition of the Board In the FY2016, there were nine Directors, with the Chairman (being a Non-Independent Non- Executive Director), two Non-Independent Non- Executive Directors, five Independent Non-Executive Directors and one Executive Director, who is the President of the Company. In line with the recommendations of the Code s Best Practices relating to board membership, as the Chairman is a Non-Independent Director, the composition for the Board comprises a majority of Independent Directors. Five out of the nine or more than 55% of its composition comprised Independent Directors. The Board composition reflects the balance of independent and nonindependent directors, with due consideration given to diversity in terms of gender, ethnicity and age. Together, the Board comprises a mix of qualified and experienced Directors with diverse skills, core competencies, background and commercial expertise including expertise in oil and gas industry, law, accountancy, business operations, financial, risk and investment management. The background of each director is set out on pages 18 to FOSTER COMMITMENT 4.1 Time commitment The Board meets on a regular and scheduled basis throughout the year. Additional meetings or special Board meetings are convened whenever necessary when there are urgent and important decisions to be made. The composition of the Board and the respective attendance record of meetings for the financial year ended 31 December 2016 are as follows: Name of Directors Tan Sri Asmat bin Kamaludin Rohaizad bin Darus Badrul Feisal bin Abdul Rahim Dr. Leong Chik Weng Razalee bin Amin Dato Afifuddin bin Abdul Kadir Cheah Tek Kuang Dato Ibrahim bin Marsidi Fina Norhizah binti Hj. Baharu Zaman Designation Chairman Non-Independent Non-Executive Director President Non-Independent Executive Director Non-Independent Non-Executive Director Non-Independent Non-Executive Director Independent Non-Executive Director Independent Non-Executive Director Independent Non-Executive Director Independent Non-Executive Director Independent Non-Executive Director Date of Appointment Date of Resignation Meeting Attendance Percentage 2 May 2013 N/A 10/12 83% 31 January 2012 N/A 12/12 100% 1 October 2015 N/A 9/12 75% 21 April February 12/12 100% May 2013 N/A 12/12 100% 2 May 2013 N/A 10/12 83% 2 May 2013 N/A 11/12 92% 2 May 2013 N/A 12/12 100% 15 August March /12 92%

11 ANNUAL REPORT UMW OIL & GAS CORPORATION BERHAD All the Directors have complied with the requirements of Bursa Malaysia in relation to attendance at Board meetings, in particular Paragraph 15.05(3) of the MMLR which states that the office of a Director will become vacant if the Director is absent for more than 50% of the total Board meetings held during a financial year. At the start of the financial year, Board meetings and the various Board Committee meetings for the Group are planned and fixed for the whole year. The meetings calendar is circulated to all Board and Board Committees members to enable members to plan ahead and ensure attendance at the respective meetings. Directors who are also members of the Board Committees are expected to commit sufficient time to carry out his/her role as member of the Board Committees. BOARD EXECUTIVE COMMITTEE The BEC met ten times during the financial year. The composition of the BEC and the respective attendance record of meetings for the financial year ended 31 December 2016 are as follows: Name of Directors Dr. Leong Chik Weng Badrul Feisal bin Abdul Rahim Razalee bin Amin Cheah Tek Kuang Dato Ibrahim bin Marsidi Fina Norhizah binti Hj. Baharu Zaman Designation Chairman Non-Independent Non-Executive Director Non-Independent Non-Executive Director Independent Non-Executive Director Independent Non-Executive Director Independent Non-Executive Director Independent Non-Executive Director Date of Appointment Date of Resignation Meeting Attendance 25 April February /10 25 April 2016 N/A 7/10 25 April 2016 N/A 10/10 25 April 2016 N/A 9/10 25 April 2016 N/A 8/10 25 April March /10 BOARD AUDIT COMMITTEE The Board Audit Committee ( BAC ) met eight times during the financial year. Details on the report for the BAC can be found on pages 85 to 87 of the Annual Report. BOARD RISK MANAGEMENT COMMITTEE The Board Investment & Risk Management Committee was renamed as Board Risk Management Committee ( BRMC ) on 25 April The BRMC is responsible for reviewing risk management and matters pertaining to quality, health, safety and environment in detail with Management and shall support the Board in the review, evaluation and recommendation on matters pertaining thereto. The BRMC met seven times during the financial year.

12 UMW OIL & GAS CORPORATION BERHAD 72 ANNUAL REPORT 2016 STATEMENT ON CORPORATE GOVERNANCE The composition of the BRMC and the respective attendance record of meetings for the financial year ended 31 December 2016 are as follows: Name of Directors Dr. Leong Chik Weng Badrul Feisal bin Abdul Rahim Dato Ibrahim bin Marsidi Cheah Tek Kuang Fina Norhizah binti Hj. Baharu Zaman Rohaizad bin Darus Designation Chairman Non-Independent Non-Executive Director Non-Independent Non-Executive Director Independent Non-Executive Director Independent Non-Executive Director Independent Non-Executive Director President Non-Independent Executive Director Date of Appointment Date of Resignation Meeting Attendance 6 December February /7 1 October 2015 N/A 3/7 6 December 2013 N/A 7/7 6 December 2013 N/A 6/7 6 December March /7 6 December 2013 N/A 7/7 BOARD NOMINATION COMMITTEE AND BOARD REMUNERATION COMMITTEE The composition of the NOMCOM and REMCOM, and the respective attendance record of meetings for the financial year ended 31 December 2016, refer to pages 66 and 68 respectively of this Annual Report. Reports/Minutes Minutes of the BEC, BRMC, BAC, NOMCOM and REMCOM meetings are kept by the Company Secretary as evidence that the respective committee has discharged its functions. The approved minutes of meetings are forwarded to the members for information and significant issues are discussed at Board meetings. The full text of the TOR for the Board Committee is available on the Company s website at DIRECTORSHIPS OUTSIDE THE GROUP To maintain good corporate governance and to avoid potential conflict of interest, the Board has set procedures with respect to accepting appointments as directors outside the Group. When a Director is appointed a director of another company outside the Group, the Director is expected to immediately disclose the same to the Company via the Company Secretary, whereupon the NOMCOM will assess and determine whether the appointment would give rise to potential conflict of interest and to consider the nature of and time commitment of such appointment. 4.2 Continuing education programmes All Directors, including newlyappointed Director, have successfully completed the Mandatory Accreditation Programme ( MAP ) conducted by Bursatra Sdn. Bhd. as required by Bursa Malaysia. In addition to the MAP, the Directors are also encouraged to attend training programmes conducted by highly competent professionals which are relevant to the Group s operations and business. The Company, generally, and the Directors specifically continue to identify and attend appropriate seminars and courses to keep abreast of changes in legislation and regulations affecting the Group. Members of the Board have attended various training programmes, seminars and luncheon talks in areas of operations, governance, leadership, financial, legal and other programmes organised internally and externally. The Company Secretary facilitates and organises internal training and coordinates Directors attendance of external seminars and programmes. The records of the trainings received by the Directors are kept by the Secretarial Division.

13 ANNUAL REPORT UMW OIL & GAS CORPORATION BERHAD Particulars of training programmes attended by the Directors as at 31 December 2016 are as follows: Director Training Programme Attended Organiser Tan Sri Asmat bin Kamaludin Briefing on Trans-Pacific Partnership Agreement Ministry of International Trade and Industry and UMW Holdings Berhad Learning from Leaders Session with Group Chairman UMW Holdings Berhad Companies Bill 2015 UMW Holdings Berhad Talk by the Mayor of Hiroshima entitled From Hiroshima to Our World University of Malaya Without Nuclear Weapons - Beyond Human Atrocities Awareness on Sustainability Reporting UMW-OG Briefing on Companies Act 2016 UMW-OG Launch of the AGM Guide & CG Breakfast Series: How To Leverage on Bursa Malaysia Berhad ( Bursa Malaysia ) AGMs for Better Engagement with Shareholders Badrul Feisal bin Abdul Rahim Mandatory Accreditation Programme for Directors of Public Listed Bursatra Sdn Bhd Companies (MAP) Briefing on Companies Act 2016 UMW-OG Dr. Leong Chik Weng Companies Bill 2015 Chemical Company of Malaysia Berhad Corporate Liability Act : What s Next? Chemical Company of Malaysia Berhad Razalee bin Amin Awareness on Sustainability Reporting UMW-OG Briefing on Companies Act 2016 UMW-OG Dato Afifuddin bin Abdul Kadir MIA International Accountants Conference 2016 Corporate Tax Issues For 2016 & 2017 Lion Group In-house Directors Training on Finance for Non-Finance Finance Language in the Boardroom Board Chairman Series Part 2: Leadership Excellence from the Chair Bursa Malaysia in collaboration with PwC Malaysia Consulting - Risk Management Programme: I Am Ready to Manage Risks! Awareness on Sustainability Reporting Briefing on Companies Act 2016 Malaysian Institute of Accountants Malaysian Institute of Accountants Lion Corporation Berhad Bursa Malaysia Bursa Malaysia / PwC UMW-OG UMW-OG Cheah Tek Kuang Directors Remuneration Report FIDE Forum Corporate Governance Breakfast Series: Improving Board Risk Oversight Bursa Malaysia Effectiveness Dialogue on Directors and Officers Liability Insurance FIDE Forum Invest Malaysia nd Distinguished Board Leadership Series - "Avoiding Financial Myopia" by Professor Jeffrey L. Sampler Board Chairman Series Part 2: Leadership Excellence From The Chair Sustainability Management on Best Practices for Sustainability Reporting What a Company Director Need to Know Briefing on the new Companies Act 2016 by Lee Hishammuddin Allen & Gledhill Bursa Malaysia FIDE Forum ICLIF EcoWorld International Bursa Malaysia

14 UMW OIL & GAS CORPORATION BERHAD 74 ANNUAL REPORT 2016 STATEMENT ON CORPORATE GOVERNANCE Director Training Programme Attended Organiser Dato Ibrahim bin Marsidi Engagement Session on Trans-Pacific Partnership Agreement TM/Khazanah Nasional Berhad Fina Norhizah binti Hj. Baharu Zaman Northgate Capital Akamai Foster Forward : Grand Challenges Facing The Internet Corporate Directors Onboarding Programme (CDOP) 2016: Updates On Companies Bill 2015 and Its Implications to Directors Khazanah Megatrends Forum 2016 TM Customer Experience Summit 2016 Customer Experience in Digital Era Awareness on Sustainability Reporting Briefing on Companies Act 2016 TM/TM Board Retreat TM/TM Board Retreat MINDA Khazanah Nasional Berhad CEMT, TM UMW-OG UMW-OG 12 th Khazanah Global Lecture Khazanah Nasional Berhad Ring The Bell for Gender Equality Bursatra Sdn Bhd Business Risk Assessment New Template Workshop Alam Maritim Resources Berhad Series 1 - Risk Oversight Practices Series 2 - Corporate Culture and ERM Institute of Enterprise Risk Practitioners Navigating Updates - An Essential Guide for Listed Issuers Coalition for Business Integrity Berhad Corporate Governance, Director s Duties and Regulatory Updates Federation of Public Listed Companies Bhd Seminar 2016 Impact of the New Companies Act 2015 on Directors and Shareholders Malaysian Institute of Accountants Awareness on Sustainability Reporting UMW-OG Briefing on Companies Act 2016 UMW-OG Rohaizad bin Darus Improving Board Risk Oversight Effectiveness Bursa Malaysia Sustainability Engagement Series Bursa Malaysia Advocacy Sessions on Management Discussion & Analysis (MD&A) for Chief Executive Officers (CEO) and Chief Financial Officers (CFO) of Listed Issuers Awareness on Sustainability Reporting Briefing on Companies Act 2016 Bursa Malaysia UMW-OG UMW-OG

15 ANNUAL REPORT UMW OIL & GAS CORPORATION BERHAD 5. UPHOLD INTEGRITY IN FINANCIAL REPORTING 5.1 Compliance with applicable financial reporting standards The Board is committed to providing a balanced, clear and meaningful assessment of the financial performance and prospects of the Group to shareholders, the investor community and the regulatory authorities. Shareholders and other stakeholders are kept abreast of the Group s performance through the timely announcement of the quarterly financial results and, uploaded on the Company s website. The BAC assists the Board to oversee the financial reporting processes and the quality of its financial reporting. Quarterly financial results and annual financial statements are reviewed by the BAC to ensure adequacy and completeness of information prior to the Board s approval. For the financial year under review, the President and the Chief Financial Officer have provided assurance to the Board that the financial records of the Group have been properly maintained and the financial statements give a true and fair view of the operations and finances and that an effective risk management and internal control system have been put in place. DIRECTORS STATEMENT RESPONSIBILITY The Board is required by the Act, to ensure that financial statements prepared for each financial year have been made out in accordance with the applicable approved accounting standards and give a true and fair view of the state of affairs of the Company and the Group at the end of the financial year and of the results and cash flows of the Company and the Group for the financial year. The Board is responsible for ensuring that the Company keeps accounting records which disclose with reasonable accuracy, the financial position of the Company and the Group and that the financial statements comply with the Act. In preparing the financial statements the Board has: Selected suitable accounting policies and applied them consistently; Made judgements and estimates that are reasonable and prudent; Ensured that all applicable accounting standards have been followed; and Prepared financial statements on the going concern basis as the Directors have a reasonable expectation, having made enquiries that the Group has adequate resources to continue in operations for the foreseeable future. 5.2 Assessment of suitability and independence of external auditors During the year 2016, the Board Audit Committee approved the external auditors performance and independence questionnaires and the Board adopted the External Auditors Assessment Policy Statement for the Group. BAC assessed the suitability and independence of external auditors for the Group and recommended their reappointment as external auditors of the Group for the financial year On 27 March 2017, the Board approved the proposal on the appointment of Messrs. Ernst & Young to be tabled for approval at the 7 th Annual General Meeting of the Company. 6. RECOGNISE AND MANAGE RISKS Sound framework to manage risks Details on the framework is set out in the Statement on Risk Management and Internal Control on pages 78 to 84 of this Annual Report. 7. INTERNAL CONTROLS The Board acknowledges its overall responsibility for maintaining a system of internal controls that provides assurance of effective and efficient operations and compliance with laws and regulations and also its internal procedures and guidelines. BAC reviews the effectiveness of the system of internal controls, which covers financial, operational and compliance controls, and also risk management. In addition, the Board recognises that an internal control system can only provide reasonable and not absolute assurance against material misstatement, frauds or loss, and is designed to manage rather than eliminate the risk of failure to achieve the financial reporting objectives. The Board is cognisant of the importance of internal audit, and the Company has during 2016 planned and, supported by the internal audit function of its parent company, Group Internal Audit Division ( GIAD ), carried out internal audit activities, concluding with a report with specific recommendations for further improvements to be implemented for deliberation of BAC and thereafter

16 UMW OIL & GAS CORPORATION BERHAD 76 ANNUAL REPORT 2016 STATEMENT ON CORPORATE GOVERNANCE the Board. The Head of GIAD attends all meetings of the BAC who presents directly the progress of the internal audit and the said report. Details of the Company s internal control system and framework are set out in the Statement on Risk Management & Internal Control on pages 78 to 84 of this Annual Report. Internal audit function BAC maintains an appropriate transparent relationship with both the external auditors and internal auditors. The BAC undertakes an assessment of the suitability and independence of the external auditors. The external auditors are invited to attend BAC meetings and present their audit findings when the Company s annual financial results are considered. The BAC meets with the external auditors twice a year without the presence of the President/Executive Director and Management. Services provided by the external auditors include statutory audit and non-audit services. The terms of engagement for services of the external auditors are reviewed by the BAC and approved by the Board. 8. ENSURE TIMELY AND HIGH QUALITY DISCLOSURE 8.1 Corporate disclosure policy The Board recognises the importance of strengthening the relationship between the Group and its shareholders and maintaining dialogue with investors to disseminate the Group s performance. The Group has in place Corporate Disclosure Policy that provides a framework of reference of Corporate Disclosure processes and procedures, ensuring the adoption of consistent disclosure practices throughout the Group. 8.2 Leverage on information technology for effective dissemination of information Website for the Group The Group has a website which provides information on the Group for all shareholders and the general public. The Group s website stores annual reports, press releases, analyst briefings presentation slides, financial and corporate information such as quarterly announcements of the financial results of the Group, disclosures and announcements made on the Group. 9. STRENGTHEN RELATIONSHIP BETWEEN COMPANY AND SHAREHOLDERS 9.1 Encourage shareholder participation at general meetings The Company s 7 th Annual General Meeting will be held on Monday, 15 May 2017 at am. The AGM is the main forum for communication and dialogue with the shareholders. At the AGM, the Chairman through his opening statement provides an overview of the industry outlook and a concise review of the Group s performance and followed by the President s comprehensive review of the Group s financial performance. The Chairman then highlights administrative matters for the meeting. Shareholders are encouraged to actively participate and interact through the questions and answers session where they are accorded both opportunity and the time to raise questions on the Group s performance, future growth prospects and strategies and other matters on the agenda during the meeting. The Board and members of the senior management as well as the external auditors are on hand to provide explanations to any queries raised by the shareholders. A comprehensive report on the Group s operations and financial performance is made at every AGM. In addition, queries by Minority Shareholder Watchdog Group ( MSWG ) raised prior to the AGM and the Company s responses are shared during the AGM. The minutes of the AGM are made available on the Group s website. 9.2 Encourage poll voting In line with the requirements of the MMLR, voting at the 7 th AGM of the Company is to be conducted by poll, instead of a show of hands. UMW-OG has appointed Securities Services Sdn. Bhd. as Poll Administrator to conduct the polling process and Commercial Quest Sdn. Bhd. as scrutineers to verify the poll results.

17 ANNUAL REPORT UMW OIL & GAS CORPORATION BERHAD 9.3 Effective communication and proactive engagements The Board and management of the Group maintain effective and timely communications with its shareholders and stakeholders through the following channels, mediums and/or meetings: (i) Bursa Malaysia Securities Berhad Announcements The Board ensures timely announcements of financial results and corporate developments are made to Bursa Malaysia. (ii) Analyst Briefing and/or Press Conference or Release Analyst briefing was held on 24 February 2016 after the full year financial results for the financial year ended 31 December 2015 was released to Bursa Malaysia. Press conference was held after the 6 th AGM on 17 May 2016, followed by a press release on the AGM. Chaired by the President, these briefings provided venues to keep the investors informed of the various activities and initiatives undertaken by the Group and to provide clearer understanding of the Group s financial and operational performance. (iii) One-on-One Meetings The Group aims to communicate fully with fund managers, investors and analysts upon request. Oneon-one meetings with analysts and fund managers are held to provide updates on the Group s strategy and financial performance. (iv) Contact for Investor Relations matters Ms Maryam Salwaana Kamal Manager, Corporate Communications maryam.salwaana@umw-oilgas.com (v) Annual Report The Annual Report is an important medium of information to the shareholders where comprehensive information on the Group s financials, operations and activities is contained. The contents of the Annual Report is consistently enhanced to reflect transparency and accountability in line with the best corporate governance practices. In accordance with Bursa Malaysia s MMLR and the Articles of Association of the Company, the notice of AGM together with the Annual Report are sent to the shareholders at least 21 days prior to the date of the meeting. All shareholders of the Company will receive the Annual Report of the Company and notice of AGM within the mandatory period. The Group distributes its Annual Report to its shareholders in abridged version together with a CD ROM. Full version of the Annual Report together with the notice of AGM are available in the Group s website. Upon request, full version of the Annual Report is distributed to the shareholders. 10. COMPLIANCE STATEMENT The Board has deliberated, reviewed and approved this Statement on Corporate Governance. The Board is satisfied that the Group has fulfilled its obligations under the Code, the relevant chapters of the MMLR of Bursa Malaysia on corporate governance and applicable laws and regulations. This Statement on Corporate Governance is made in accordance with the resolution of the Board duly passed on 27 March 2017.

18 UMW OIL & GAS CORPORATION BERHAD 78 ANNUAL REPORT 2016 STATEMENT ON RISK MANAGEMENT & INTERNAL CONTROL FOR THE YEAR ENDED 31 DECEMBER INTRODUCTION Pursuant to the Main Market Listing Requirements ( MMLR ) of the Bursa Malaysia Securities Berhad ( Bursa Malaysia ) and the requirements of the Malaysian Code on Corporate Governance 2012, the Board of Directors ( Board ) is committed to maintaining sound systems of risk management and internal control in UMW-OG and its subsidiaries ( Group ) to manage risks and to report on internal controls and regulatory compliance so as to safeguard shareholders investment and the Group s assets. Set out below is the Board s Statement on Risk Management and Internal Control for the financial year ended 31 December 2016 which was prepared in accordance with the Statement on Risk Management & Internal Control - Guidelines for Directors of Listed Issuers ( Guidelines ) issued by Bursa Malaysia pursuant to Paragraph 15.26(b) of the MMLR. This Statement outlines the nature and scope of risk management and internal control of the Group and covers all of the Group s operations except for associated company. 2. RESPONSIBILITY The Board recognises the importance of establishing and maintaining sound systems of risk management and internal control in the Group and as such, affirmed their commitment and responsibility for the Group s risk management and internal control systems covering not only financial controls but also operational, organisational and compliance controls, and for reviewing the adequacy and integrity of these systems. The Board has delegated the responsibility of overseeing and reviewing the effectiveness of the Group s Enterprise Risk Management ( ERM ) to the Board Risk Management Committee ( BRMC ). The BRMC provides half yearly report to the Board on ERM. In addition, the Board Audit Committee ( BAC ) assists the Board in discharging its responsibilities relating to system of internal controls and risk management processes. The Chairman of the BAC reports to the Board after each meeting. The approved minutes of BAC meetings are forwarded to Board members for information and significant issues are discussed at Board of Directors meetings. Whilst the Board has overall responsibility for the Group s risk management and internal control systems, it has delegated the implementation of these systems to the Management who regularly reports on risks identified and action or steps taken to mitigate and/or minimise the risks. The Management Audit Committee and the Risk Management Committee, comprising of Senior Management staff, report to the BAC and the BRMC, respectively on a quarterly basis. The Group s risk management and internal control systems are designed to meet the Group s particular needs, to efficiently and effectively manage risks that may impede the achievement of the Group s business objectives, provide information for accurate reporting and ensure compliances with regulatory and statutory requirements. The processes for the identification, evaluation, monitoring and managing of significant risks that may materially affect the Group s business objectives had been in place throughout the financial year under review and were regularly appraised by the Board. However, in view of the limitations inherent in any system, it should be appreciated that these systems are designed to manage and reduce, rather than eliminate, the risks identified to acceptable levels of failure to achieve the Group s business and corporate objectives. These systems can therefore only provide reasonable and not absolute assurance against material misstatement, fraud or loss. The Group s concept of reasonable assurance also recognises that the cost of control procedures should not exceed the expected benefits. 3. RISK MANAGEMENT The Group has established an Enterprise Risk Management Framework to proactively identify, evaluate and manage key risks to an optimal level. In line with the Group s commitment to deliver sustainable value, this framework aims to provide an integrated and organised approach entity-wide.

19 ANNUAL REPORT UMW OIL & GAS CORPORATION BERHAD It outlines the ERM methodology which is in line with the Principles and Guidelines of ISO31000: Risk Management - Principles and Guidelines, mainly promoting risks ownership and continuous monitoring of key risks identified. The Group s ERM Framework is summarised in the diagram below: ENTERPRISE MANAGEMENT FRAMEWORK ERM INFRASTRUCTURE ERM PROCESS ERM INTEGRATION Vision Operational Process Governance RISK ASSESSMENT Strategic Planning Board/Management Mandate Decision Making Reporting ERM Policies & Procedure CONTINUOUS MONITORING & COMMUNICATION BUSINESS GOALS, OBJECTIVES & STRATEGIES RISK ACTION PLANNING IMPLEMENTATION Investment/Divestment Tendering Exercise Role & Responsibilities Business Planning (Budgeting) ISO Automation RISK ACTION PLAN MONITORING Policy Development Risk-based Internal Audit ERM EDUCATION Communication Awareness/Training Continuous Improvement Risk Management Oversight The oversight role of risk management is carried out by the BRMC. Mandate and commitment from the Board and BRMC are key contributors to the success factors in the implementation of the ERM programmes. The Board and BRMC play a crucial role in risk oversight and set the strategic direction for risk roles, responsibilities and risk reporting structures. The periodic reporting to both the Board and BRMC on risk management activities by management via the Risk Management Committee ( RMC ) keeps the Board and BRMC apprised and advised of all aspects of ERM and significant individual risks and risk trends. In addition to the reporting requirements to the BRMC and the Board, the RMC has specific responsibilities that include, but are not limited to, establishing and implementing ERM mechanism to meet the requirements of ERM policies and articulate and challenge risk ratings. The levels of Board and Management s participation and the reporting structure are shown in the diagram below: BOARD OF DIRECTORS BOARD RISK MANAGEMENT COMMITTEE Senior Management RISK MANAGEMENT COMMITTEE GROUP TOP RISKS Risk Management & Insurance Department DIRECTION Risk Owners Risk Co-Owners CORPORATE & OPERATIONAL RISKS STRATEGIC BUSINESS UNITS Drilling Services Segment Oilfield Services Segment Corporate Functions Staff INFORMATION

20 UMW OIL & GAS CORPORATION BERHAD 80 ANNUAL REPORT 2016 STATEMENT ON RISK MANAGEMENT & INTERNAL CONTROL FOR THE YEAR ENDED 31 DECEMBER 2016 The RMC is assisted by Risk Management and Insurance Department ( RMID ) whose primary role includes, but not limited to, ensuring effective implementation of risks management and business continuity management framework, programmes and education across the Group, providing independent and objective assessment on risks as well as timely reporting to the RMC, BRMC and the Board. Risk Management Policies The policies of the Board for risks management are: a. To integrate risks management into the culture, business activities and decisionmaking processes; b. To anticipate and respond to the changing operational, social, environmental and regulatory requirements proactively; c. To manage risks pragmatically, to acceptable levels given the particular circumstances of each situation; d. To include a detailed risk assessment report in all Board papers relating to strategy, key project approval, significant action or investment for Board s deliberation and consideration; and e. To implement a robust and sustainable risk management framework that is aligned with the Group s vision and missions and in accordance with best practices. Risk Management Process The Group s ERM Framework has a structured process for Operating Companies and Corporate Divisions to identify, analyse, evaluate, treat, communicate and monitor their risks. The risks are identified based on the Group s goals and objectives and assessed against the Group Risk Parameters. Each risk identified will be reassessed and monitored on an ongoing basis to ensure its relevance and appropriate risk action plans are taken to manage the risks. A risk escalation procedure has also been established to escalate significant changes in risks or emerging risks for Management s actions. Management of Strategic and Operational Risks The context within which the Group manages its risks and key focus of accountability is as follows: Strategic risks are risks primarily caused by events that are external to the Group, but have a significant impact on its strategic decisions or activities such as declining global oil price. Accountability for managing strategic risks therefore rests with the Board and the President. The benefit of effectively managing strategic risks is that the Group can better pre-empt and adapt quickly to the changing demands that are placed upon the Group. It also means that the Group is able to react more timely to some external events that call for significant change. Operational risks are inherent in the ongoing activities within the different Strategic Business Units ( SBU ) of the Group. Typically, these are risks relating to foreign exchange, interest rates, fundings, trade debt collection, compliance, competency, technology, etc. Senior Management needs on-going assurance that operational risks are identified and managed. Accountability for managing operational risks rests specifically with the Heads of SBUs, operating companies and divisions. Risk Reporting The Group s ERM Framework provides for regular review and reporting. The ERM reports include information on risk profiles, risk action plans ( RAPs ) and status updates. During the year under review, these reports were presented and deliberated four (4) times by the RMC, four (4) times by BRMC and two (2) times by the Board. Risk Management Activities As part of the Group s effort to instill a proactive risk management culture and ownership, the following activities were undertaken during the year under review: a. Rolled out a comprehensive ERM Education Programme which included ERM awareness sessions, training and coaching for operating companies and corporate divisions as well as newly appointed employees. This is part of the Group s effort to communicate and ensure continuous application of ERM in day-to-day business operations. b. A total of four (4) ERM awareness sessions were conducted for all employees both for operating companies and corporate divisions. c. Held discussions with Heads of operating companies and corporate divisions to obtain endorsement of their key risks. d. Provided risk advisory and independent assessment as well as facilitated (63) risk assessment workshops across the Group. e. Refined the risk register template for purposes of risk registration and monitoring. f. Established Business Continuity Management ( BCM ) Framework, conducted BCM awareness sessions to Management. Set up BCM Committee at management level and is currently in the process of developing the Business Continuity Plan for both operating companies and corporate divisions.

21 ANNUAL REPORT UMW OIL & GAS CORPORATION BERHAD 4. INTERNAL AUDIT FUNCTION The Internal Audit function of UMW- OG Group is outsourced to the Group Internal Audit Division ( GIAD ) of ( UMWH ). GIAD is independent of the UMW-OG Group s business operations and has a mandate set out in its Internal Audit Charter. GIAD is a corporate member of the Institute of Internal Auditor Malaysia ( IIAM ) and subscribes to the standards issued by IIAM. During the financial year, GIAD had carried out its functions in accordance with the 2016 internal audit plan approved by the BAC. The internal audit plan defined the scope of audit work and addressed resources needed to perform such work at a mutually agreed fee. The internal audit plan was designed using a risk-based approach, based on the risks identified and assessed by the Management. The GIAD had conducted internal audit on principal areas of operation within the Group. It also checked that the Group s system of internal control remains effective, efficient, adequately monitored and is enhanced where required. The audit also covered the Group s major information systems and applications. The reports of the GIAD were presented to the BAC at the 2016 quarterly meetings. The Head of GIAD or her representative attended all the quarterly BAC meetings held in 2016 where internal audit matters were tabled. In addition, GIAD also monitored the implementation of action plans designed to improve on areas where control deficiencies were identified during the financial year. On a quarterly basis, GIAD submitted its reports on major findings and significant control issues observed during the audit reviews, together with management s response and proposed action plans, to the BAC for its review and where needed, to recommend appropriate actions to strengthen controls. The BAC evaluates and monitors the performance of the internal audit function to assess its effectiveness in discharging its defined duties and responsibilities. 5. INTERNAL CONTROL FRAMEWORK The Board confirms that there is an ongoing process for identifying, evaluating, monitoring and managing the significant risks of the Group. Such process is applied consistently throughout the Group and is constantly reviewed by the Board with the assistance of GIAD. The key elements of the Group s internal control structure and environment are described below: a. Board Committees The Board is the pillar of the Group s risk management and internal control practices. The Board is committed in maintaining a sound system of internal control and continues to uphold and implement a strong culture and environment for the proper conduct of the Group s business operations. The Board, in discharging its duties, has established several Committees namely the BAC, the Board Executive Committee ( BEC ), the Board Nomination Committee, the Board Remuneration Committee, BRMC, and the Board Whistle- Blowing Committee. The Board Committees operate within clearly defined terms of reference, procedures and authority delegated and approved by the Board, which are reviewed from time to time to ensure that they are relevant and up-to-date. The Board, BEC, BAC and BRMC meetings are held on a quarterly basis during the financial year. However, additional meetings may be convened as Special Meetings where situations require. The other Board Committees meet as and when required, to examine specific areas and issues and report to the Board on their deliberations together with recommendations. b. Organisation Structure and Reporting Lines The Board has established a welldefined organisation structure that is aligned to business requirements with clearly defined delegation of responsibilities by the Board to its Committees and Management that promotes accountability for appropriate risk management and control procedures. Apart from the Board Committees, the Board is supported operationally by the Management Committee and several management working committees including but not limited to Banking Committee, Tender Committee, Risk Management Committee, Management Audit Committee and Business Continuity Management Steering Committee which consist of the President and/or Senior Management staff. The Management Committee convened a total of nine (9) meetings during the year to discuss its strategic business agendas that include review of the Group s performance, thus channeling appropriate inputs to the Board for its oversight of the Group s operations and maintenance of effective control over the entire operations. The organisation structure and delegation of responsibilities are communicated

22 UMW OIL & GAS CORPORATION BERHAD 82 ANNUAL REPORT 2016 STATEMENT ON RISK MANAGEMENT & INTERNAL CONTROL FOR THE YEAR ENDED 31 DECEMBER 2016 throughout the Group which set out, amongst others, authorisation levels, segregation of duties and other risk and control procedures. c. Management Audit Committee The Management Audit Committee ( MAC ) is established by the BAC with the primary objective of assisting the BAC in fulfilling its fiduciary responsibilities relating to the adequacy and effectiveness of internal controls, risks management and governance processes for the Group. MAC s functions are: To review internal audit reports with management of the company under audit and internal auditors; To assess the adequacy and effectiveness of internal controls, risks management and governance processes; To assess the level of compliance with approved company policies, procedures and legal requirements; To review effectiveness or appropriateness of action plans recommended to address control deficiencies identified; To agree on the corrective actions to be taken and its implementation; To follow-up on status of the implementation of the agreed action plans; and To report to BAC on meetings held, actions agreed upon and status of implementation on a quarterly basis. The composition of the committee is: i. Chief Financial Officer (Chairperson); ii. Manager of RMID (permanent member); iii. Senior management of the company being audited; and iv. Representative(s) from GIAD headed by a Senior Manager and/or Head of GIAD. During the year, the MAC held several meetings to carry out its functions. The MAC had its meeting(s) prior to the quarterly BAC meetings. d. Comprehensive Budgeting and Forecasting System For the development of its 2016 operating and capital budgets, the Group performed a comprehensive annual budgeting and forecasting exercise. The exercise included industry and market studies, formulation of business strategies and establishment of key performance indicators ( KPIs ) which were deliberated and approved by the Board in December Budgets prepared by operating units and corporate divisions are regularly compared with the actual results and explanations on variances are incorporated in management reports which are prepared and reported on a quarterly basis to the Board. These management reports analyse and explain variances against plan and report on the achievement of the KPIs after taking into account the changes in market conditions and significant business risks. On a monthly basis, a rolling forecast on the financial performance is prepared based on actual performance to date and forecast performance for the remaining period of the year. The rolling forecast takes into account changes in market conditions and the industry the Group is operating in. During the year under review, the Group continued to be adversely impacted by the significantly lower levels of exploration, development and production activities in the oil and gas industry caused by supply glut that had weighed on prices for the last two years. As a result, the 2016 budgets were revised downward to take into account the above material changes. A total of 14 additional reporting to the BEC and the Board on the financial health of the Group were also made during the year to enable the Board to make appropriate strategic planning and decisions in view of the prolonged low oil price environment. The Group employs a reward and recognition framework based on the achievement of KPIs that measures the goals and targets for each individual operating unit in alignment with the Group s business objectives and strategies. e. Policies and Procedures The Board is committed to maintaining a strong control structure and environment for the proper conduct of the Group s business operations and has put in place the following:

23 ANNUAL REPORT UMW OIL & GAS CORPORATION BERHAD i. Written Policies and Procedures Clearly defined and documented internal policies and guidelines have been established through the relevant charters, terms of reference, organisational structures and appropriate authority limits. The Group s policies and guidelines have been communicated throughout the Group including via UMW-OG SharePoint for implementation and compliance. These policies and guidelines are approved by the Board and regularly updated to reflect changing business requirements. ii. Limits of Authority and Responsibility Clearly defined and documented lines and limits of authority, responsibilities and accountability have been established by the Group in the form of Financial Limits Authority Guidelines ( FLAG ). The FLAG outlines the authority of the Board and its Committees and that of Management for all transactions and for ensuring compliance with laws and regulations that have significant financial implications. Procedures are also in place to ensure that assets are subject to proper physical controls and that the organisation remains structured to ensure appropriate segregation of duties. The FLAG is also regularly updated to reflect changing risks or to address operational deficiencies. f. Monitoring, Reporting and Reviewing The effectiveness of the Group s systems of risk management and internal control are monitored through monthly management review of financial and operating results, business processes, the state of internal controls and business risk profile by the respective Heads of SBUs and Corporate Divisions and reported to the Management Committee. In addition to the monthly reporting, the Budget Review Committee chaired by the President performed post-mortem and mid-term business reviews on all operating units and initiate corrective measures where needed. Apart from that, regular internal visits are also made to the operating units by senior management to monitor compliance with policies and to assess performance. The Board is updated on the business performance on a quarterly basis. During the year under review, additional monthly reporting to the Board was made on 2016 forecast performance as a result of drastic changes in market conditions of the Oil & Gas industry. In addition, these reviews are supplemented by a comprehensive review undertaken by GIAD on controls implemented at each individual business units and operations. Reports on the reviews carried out by GIAD are submitted on a regular basis to Management and the BAC. These reports assess the impact of control issues and recommend appropriate actions to be taken to strengthen controls. The President and Chief Financial Officer report to the BAC on the status of management s action plans to address issues highlighted by the GIAD on a quarterly basis. The Board does not regularly review the internal control systems of associated company, as the Board does not have any direct control over their operations. Notwithstanding the above, the Group s interests are served through representation on the Board of the associated company and receipt and review of management and audited financial statements, and enquiries thereon. Such representation also provides the Board with information for timely decision making on the continuity of the Group s investment based on the performance of the associated company. The representation also enables the Group to exercise influence over the financial and operating policies of the associated company. The monitoring, reviewing and reporting arrangements in place give reasonable assurance that the structure of controls and its operations are appropriate to the Group s operations. Other than some weaknesses identified and addressed during the year, the Board believes that the system of internal controls is adequate and effective in achieving the Group s business objectives.

24 UMW OIL & GAS CORPORATION BERHAD 84 ANNUAL REPORT 2016 STATEMENT ON RISK MANAGEMENT & INTERNAL CONTROL FOR THE YEAR ENDED 31 DECEMBER ASSURANCE TO THE BOARD In line with the Guidelines, the Board has received assurance from the President and Chief Financial Officer of UMW-OG stating that the Group s risk management and internal control systems have operated adequately and effectively to a large extent, in all material aspects, for the financial year ended 31 December 2016 up to the date of this Statement save for some control weaknesses identified and addressed during the year. The Board is of the view that there is a continuous process in identifying, evaluating, monitoring and managing the significant risks faced by the Group and that during the financial year under review there were no significant weaknesses in the risk management and internal control systems of the Group which had resulted in material losses, contingencies or uncertainties requiring disclosure in the Annual Report. The Board is satisfied that the systems of risk management and internal control in the Group are sound and sufficient to safeguard shareholders investment and the Group s assets for the financial year under review and up to the date of the Annual Report save for some control weaknesses identified and addressed during the year. 6. REVIEW OF THIS STATEMENT The External Auditors, Messrs. Ernst & Young, have performed limited assurance procedures on the Statement in accordance with Malaysian Approved Standard on Assurance Engagements, ISAE 3000, Assurance Engagement Other Than Audits or Reviews of Historical Financial Information and Recommended Practice Guide 5 (Revised), Guidance for Auditors on Engagements to Report on the Statement on Risk Management & Internal Control included in the Annual Report. Messrs. Ernst & Young have reported to the Board that nothing has come to their attention that causes them to believe that the Statement included in the Annual Report is not prepared, in all material respects, in accordance with the disclosures required by Paragraphs 41 and 42 of Statement on Risk Management & Internal Control: Guidelines for Directors of Listed Issuers, nor is the Statement factually inaccurate. This Statement is made in accordance with the resolution of the Board dated 14 March The Board remains committed to ensure that appropriate initiatives and active measures are taken to improve and enhance the Group s risk management and internal control systems so that shareholders investment and the Group s assets are consistently safeguarded.

25 ANNUAL REPORT UMW OIL & GAS CORPORATION BERHAD BOARD AUDIT COMMITTEE REPORT The Board Audit Committee ( BAC ) assists the Board of Directors ( Board ) of the Company in fulfilling its oversight responsibilities in areas such as the integrity of financial reporting, the effectiveness of system of internal controls and risk management processes and related governance and compliance matters. This report provides insights into BAC s work and the issues considered during the year ended BAC was established on 13 May 2013 and its Terms of Reference ( TOR ) was approved by the Board of Directors of the Company on 13 May The highlighted roles of the BAC are to review, evaluate and report to the Board on the following: Consider and recommend the appointment of the external auditors, the audit fee and any questions of resignation or dismissal; Review the quarterly and annual financial statements for recommendation to the Board for approval; Discuss reservations arising from interim and final audits; Review the adequacy and effectiveness of its risk management and internal control systems as well as financial reporting standards of the Group; and Consider any related party transactions that may arise within the Group. Detailed TOR of the BAC can be found on the Company s website at Performance Review of the BAC The Board Nomination Committee ( NOMCOM ) had conducted the annual performance evaluation of the BAC for the FY2016 and the report of which was reviewed by the Board. The Board is satisfied that the BAC has discharged its duties in accordance with its TOR. The composition of the BAC and attendance of BAC Meetings for the financial year ended 31 December 2016: Committee Member Razalee bin Amin Badrul Feisal bin Abdul Rahim Cheah Tek Kuang Dato Ibrahim bin Marsidi Designation Chairman Independent Non-Executive Director Non-Independent Non-Executive Director Independent Non-Executive Director Independent Non-Executive Director Date of Appointment Date of Resignation Meeting Attendance 13 May 2013 N/A 8/8 1 October 2015 N/A 7/8 13 May 2013 N/A 8/8 13 May 2013 N/A 7/8 Note: Please refer to pages 20 to 23 for the profiles of the BAC members. The Chairman of the BAC, Razalee bin Amin, is a member of the Malaysian Institute of Accountants, a member of the Malaysian Institute of Certified Public Accountants and a member of the Financial Planning Association of Malaysia. The BAC therefore, meets the requirements of Paragraph 15.09(1)(c) of the MMLR of Bursa Malaysia. The BAC comprises of four Non-Executive Directors, with the majority being Independent Directors in compliance with the provisions of Paragraph 15.09(1) of the MMLR of Bursa Malaysia. A total of eight meetings were held during the financial year ended 31 December The President and Chief Financial Officer were invited and attended all BAC meetings to present the quarterly financials, facilitate deliberations and provide explanations on the audit issues, specific control lapse and issues arising from the relevant audit reports. The members of the BAC had two sessions with the external auditors without the presence of the Management.

26 UMW OIL & GAS CORPORATION BERHAD 86 ANNUAL REPORT 2016 BOARD AUDIT COMMITTEE REPORT The external auditors were invited to discuss on external audit terms of engagement, the audit strategy and audit planning memorandum. Minutes of each meeting are kept by the Company Secretary as evidence that the BAC has discharged its functions. The Chairman of BAC reports to the Board after each meeting. The approved minutes of BAC meetings are forwarded to Board members for information and significant issues are discussed at Board s meetings. Summary of Activities of the BAC In accordance with its TOR, the BAC undertook the following key activities for the financial year ended 31 December 2016: Financial Reporting 1. Assisted the Board in discharging its statutory duties and responsibilities relating to accounting and reporting practices of the Company and the Group in accordance with Malaysian Financial Reporting Standards ( MFRS ); 2. Reviewed the quarterly unaudited financial results including related disclosures for recommendation to the Board for approval; 3. Reviewed the annual audited financial statements of the Group and ensuring that statements comply with MFRS for recommendation to the Board for approval; and 4. Reviewed and examined the impairment assessments and the assumptions adopted in arriving at the recoverable amounts. The BAC considered the MFRS 136 on Impairment of Assets and the oil price developments during the deliberation prior to the recommendation to the Board for approval. Please see Notes 2.2(r) and 4(c) to the Notes to Financial Statements; Internal Audit 5. Reviewed the Annual Internal Audit Plan, methodology, functions and resources; 6. Received and reviewed quarterly reports by the Management Audit Committee on the findings of group audit, on significant findings and compliance issues as well as the Management s responses; 7. Reviewed audit fieldworks, audit performance ratings and any key observation notes; 8. Reviewed ongoing Audit Plan by Group Internal Audit Division ( GIAD ); 9. Deliberated the performance and control gaps highlighted in the internal audit reports, audit recommendations and Management s responses to the control lapses; and 10. Reviewed and deliberated on special reviews conducted within the Group; External Audit 11. Reviewed the external audit terms of engagement, the audit strategy and the achievement of the agreed upon reporting timeframes for the audit of the financial statements; 12. Reviewed the external audit reports and discussed findings and any reservations arising thereon; 13. Met with the external auditors twice during the year without the presence of the Management of the Company and/ or the Group; 14. Obtained a written assurance from the external auditors confirming that they are, and have been independent throughout the conduct of the audit of the financial statements of the Company and the Group for the financial year ended 31 December 2016 in accordance with the By-laws (on Professional Ethics, Conduct and Practice) of the Malaysian Institute of Accountants; 15. Reviewed the External Auditors Assessment Policy to outline the guidelines and procedures for the BAC to assess and review the external auditors. The Board approved the External Auditors Assessment Policy in November 2016; 16. Assessed the suitability and independence of the external auditors in accordance to the approved External Auditors Assessment Policy. The assessment considered the following matters: - The external auditors requisite skills and expertise, including industry knowledge to effectively audit the Group; - The independence and objectivity of the external auditors; - The planning and execution of audit plan approved by the BAC; - Key risks including fraud risks had been highlighted, discussed and factored in the audit plan; and - The effectiveness of communication between the external auditors and the BAC. 17. Evaluated the performance of the external auditors for FY2016 and BAC recommended to the Board that Messrs. Ernst & Young be appointed as external auditors for the year ending 31 December 2017 at the 7 th AGM; and

27 ANNUAL REPORT UMW OIL & GAS CORPORATION BERHAD 18. Reviewed and considered the audit fees for the external auditors for recommendation to the Board for approval. Related Party Transactions 19. Reviewed and assessed the internal control procedures on related party transactions entered into by the Group with related parties and having satisfied that the Group has in place adequate procedures and processes to monitor, track and identify such transactions in a timely and orderly, recommended to the Board for approval; 20. Reviewed the pricing of transactions with related parties on quarterly basis to ensure that the transactions are not at terms more favourable than the prevailing market practices; and 21. Reviewed the Circular to Shareholders with regard to the proposed renewal of shareholders mandate for existing recurrent related party transactions for recommendation to the Board for approval. Compliance Programmes 22. Reviewed the compliance framework as well as the regulatory and business requirements of the Group; and 23. Reviewed the Compliance Department s roles and focus, the Internal Control Risk Assessment ( ICRA ) and ICRA timeline. Annual Report 24. Reviewed the BAC Report, the Statement on Risk Management and Internal Control and the Statement on Corporate Governance prior to their inclusion in the Annual Report for the Board s approval. Internal Audit Functions The Group outsourced the function of internal audit to GIAD of UMW Holdings Berhad to accomplish its internal audit requirements. The GIAD audits internal control practices and reports significant findings to the BAC together with recommended corrective actions. Management is responsible for ensuring that corrective actions are undertaken within an appropriate time frame. All findings by GIAD are treated in strictest confidence. GIAD is independent of the activities it audits and performs with impartiality and due professional care. The BAC approves the internal audit plan of GIAD for the Group each year. The scope of the internal audit covers the audit of principal areas of operations within the Group. During the year, the GIAD ensured that internal control measures were adequate and effective in mitigating key risks and that these are monitored. The monitoring process will form the basis for continually improving the risk management process in the context of the Group s overall goals. The total cost incurred by the Group for internal audits on its business units for the financial year ended 31 December 2016 amounted to RM 1,059,600. Further details on the internal audit functions are set out in the Statement on Risk Management and Internal Control on page 78 of this Annual Report.

28 UMW OIL & GAS CORPORATION BERHAD 88 ANNUAL REPORT 2016 ADDITIONAL COMPLIANCE INFORMATION 1. UTILISATION OF PROCEEDS As at 31 March 2017, the total Initial Public Offering ( IPO ) proceeds of RM1,713.0 million raised on 1 November 2013 had been fully utilised in accordance with designated purposes within the time frame for utilisation. Refer to the table below: Purpose Proposed Utilisation RM million Actual Utilisation to date RM million Acquisition of rigs & Hydraulic Workover Unit ( HWU ) Upgrading of rigs & HWU 20.1 Acquisition / upgrading of machineries 10.4 for oilfield services Mobilisation and demobilisation costs for drilling rigs 50.0 Repayment to UMWH IPO / Listing expenses 48.5 Fully utilised Total 1, AUDIT AND NON-AUDIT FEES The amount of audit and non-audit fees incurred by the Company and the Group for the financial year ended 31 December 2016 is set out on page 158 of this Annual Report. 3. MATERIAL CONTRACTS There were no material contracts entered into by the Group involving the interest of Directors or Major Shareholders, either still subsisting at the end of the financial year ended 31 December 2016 or entered into since the end of the previous financial year. 4. RECURRENT RELATED PARTY TRANSACTIONS OF A REVENUE OR TRADING NATURE Please refer to the information stated in the Circular to Shareholders dated 21 April 2017.

29 FINANCIAL STATEMENTS Directors Report 90 Statement by Directors 94 Statutory Declaration 94 Independent Auditors Report 95 Consolidated Statement of Financial Position 99 Consolidated Statement of Comprehensive Income 101 Consolidated Statement of Changes in Equity 102 Consolidated Statement of Cash Flows 103 Statement of Financial Position 105 Statement of Comprehensive Income 107 Statement of Changes in Equity 108 Statement of Cash Flows 109 Notes to the Financial Statements 111 Supplementary Information 183

30 UMW OIL & GAS CORPORATION BERHAD 90 ANNUAL REPORT 2016 DIRECTORS REPORT The directors hereby present their report together with the audited financial statements of the Group and of the Company for the financial year ended 31 December PRINCIPAL ACTIVITIES The principal activities of the Group and the Company are referred to in Note 1 to the financial statements. There have been no significant changes in the nature of the principal activities during the financial year. RESULTS The results of the Group and of the Company for the financial year ended 31 December 2016 are as follows: Group RM 000 Company RM 000 Loss for the year (1,183,447) (287,462) Attributable to: Equity holders of the Company (1,177,379) (287,462) Non-controlling interests (6,068) (1,183,447) (287,462) As at 31 December 2016, the Group had impaired its assets by RM780,265,000. Further details are disclosed in Note 4 to the financial statements. Other than the above, there were no material transfers to or from reserves or provisions during the financial year other than as disclosed in the financial statements.

31 ANNUAL REPORT UMW OIL & GAS CORPORATION BERHAD DIVIDENDS No dividend has been paid or declared by the Company since the end of the previous financial year. DIRECTORS The names of the directors of the Company in office since the date of the last report and at the date of this report are: Tan Sri Asmat bin Kamaludin Dato Abdul Rahman bin Ahmad (apppointed on 19 January 2017) Badrul Feisal bin Abdul Rahim Rohaizad bin Darus Dr. Leong Chik Weng (resigned on 24 February 2017) Razalee bin Amin Dato Afifuddin bin Abdul Kadir Cheah Tek Kuang Dato Ibrahim bin Marsidi Fina Norhizah binti Hj Baharu Zaman (resigned on 1 March 2017) DIRECTORS BENEFITS Neither at the end of the financial year, nor at any time during the year, did there subsist any arrangement to which the Company was a party, whereby the directors might acquire benefits by means of the acquisition of shares in or debentures of the Company or any other body corporate. Since the end of the previous financial year, no director has received or become entitled to receive a benefit (other than benefits included in the aggregate amount of emoluments received or due and receivable by the directors or the fixed salary of a full-time employee of the Company or a related corporation as shown in Note 24 and Note 26 to the financial statements) by reason of a contract made by the Company or a related corporation with any director or with a firm of which he is a member, or with a company in which he has a substantial financial interest, except as disclosed in Note 35 to the financial statements.

32 UMW OIL & GAS CORPORATION BERHAD 92 ANNUAL REPORT 2016 DIRECTORS REPORT DIRECTORS INTERESTS According to the register of directors shareholdings, the directors in office at the end of the financial year did not have any interest in the shares of the Company or in the shares of the holding company, UMW Holdings Berhad or its related corporations except for the following: The Company Number of Ordinary Shares of RM0.50 Each 1 January 31 December 2016 Bought Sold 2016 Direct interest Razalee bin Amin 203, ,000 Dato Afifuddin bin Abdul Kadir 275, ,000 Cheah Tek Kuang 120, ,000 Dato Ibrahim bin Marsidi 30,000 30,000 Fina Norhizah binti Hj Baharu Zaman 20,000 20,000 Rohaizad bin Darus 1,000,000 1,000,000 Indirect interest Tan Sri Asmat bin Kamaludin 304, ,000 Cheah Tek Kuang 6,000 20,000 26,000 The Holding Company Indirect interest Tan Sri Asmat bin Kamaludin 18,000 18,000 OTHER STATUTORY INFORMATION (a) Before the statements of financial position and statements of comprehensive income of the Group and of the Company were made out, the directors took reasonable steps: (i) (ii) to ascertain that proper action had been taken in relation to the writing off of bad debts and the making of allowance for impairment on receivables and satisfied themselves that all known bad debts had been written off and that adequate allowance for impairment on receivables has been made; and to ensure that any current assets which were unlikely to realise their values as shown in the accounting records in the ordinary course of business had been written down to an amount which they might be expected so to realise. (b) At the date of this report, the directors are not aware of any circumstances which would render: (i) (ii) the amount written off for bad debts or the amount of the allowance for impairment on receivables in the financial statements of the Group and of the Company inadequate to any substantial extent; and the values attributed to the current assets in the financial statements of the Group and of the Company misleading.

33 ANNUAL REPORT UMW OIL & GAS CORPORATION BERHAD OTHER STATUTORY INFORMATION (CONT D.) (c) (d) (e) At the date of this report, the directors are not aware of any circumstances which have arisen which would render adherence to the existing method of valuation of assets or liabilities of the Group and of the Company misleading or inappropriate. At the date of this report, the directors are not aware of any circumstances not otherwise dealt with in this report or financial statements of the Group and of the Company which would render any amount stated in the financial statements misleading. As at the date of this report, there does not exist: (i) (ii) any charge on the assets of the Group and of the Company which has arisen since the end of the financial year which secures the liabilities of any other person; or any material contingent liability of the Group and of the Company which has arisen since the end of the financial year. (f) In the opinion of the directors: (i) (ii) no contingent or other liability has become enforceable or is likely to become enforceable within the period of twelve months after the end of the financial year which will or may affect the ability of the Group or of the Company to meet their obligations when they fall due; and no item, transaction or event of a material and unusual nature has arisen in the interval between the end of the financial year and the date of this report which is likely to affect substantially the results of the operations of the Group or of the Company for the financial year in which this report is made. SUBSEQUENT EVENTS Details of subsequent events are disclosed in Note 39 to the financial statements. AUDITORS The auditors, Ernst & Young, have expressed their willingness to continue in office. Signed on behalf of the Board in accordance with a resolution of the directors dated 10 April TAN SRI ASMAT BIN KAMALUDIN ROHAIZAD BIN DARUS

34 UMW OIL & GAS CORPORATION BERHAD 94 ANNUAL REPORT 2016 STATEMENT BY DIRECTORS PURSUANT TO SECTION 169(15) OF THE COMPANIES ACT, 1965 We, TAN SRI ASMAT BIN KAMALUDIN and ROHAIZAD BIN DARUS, being two of the directors of UMW OIL & GAS CORPORATION BERHAD, do hereby state that, in the opinion of the directors, the accompanying financial statements set out on pages 99 to 182 are drawn up in accordance with Malaysian Financial Reporting Standards, International Financial Reporting Standards and the requirements of the Companies Act, 1965 in Malaysia so as to give a true and fair view of the financial position of the Group and of the Company as at 31 December 2016 and of their financial performance and cash flows for the year then ended. The supplementary information set out in Note 40 on page 183 to the financial statements have been prepared in accordance with the Guidance on Special Matter No. 1, Determination of Realised and Unrealised Profits or Losses in the Context of Disclosure Pursuant to Bursa Malaysia Securities Berhad Listing Requirements, as issued by the Malaysian Institute of Accountants. Signed on behalf of the Board in accordance with a resolution of the directors dated 10 April TAN SRI ASMAT BIN KAMALUDIN ROHAIZAD BIN DARUS STATUTORY DECLARATION PURSUANT TO SECTION 169(16) OF THE COMPANIES ACT, 1965 I, WAI THUY FONG, being the officer primarily responsible for the financial management of UMW OIL & GAS CORPORATION BERHAD, do solemnly and sincerely declare that the accompanying financial statements set out on pages 99 to 183 are in my opinion correct, and I make this solemn declaration conscientiously believing the same to be true and by virtue of the provisions of the Statutory Declarations Act, Subscribed and solemnly declared by the abovenamed WAI THUY FONG at Kuala Lumpur in the Federal Territory on 10 April 2017 WAI THUY FONG Before me,

35 ANNUAL REPORT UMW OIL & GAS CORPORATION BERHAD INDEPENDENT AUDITORS REPORT TO THE MEMBERS OF UMW OIL & GAS CORPORATION BERHAD (INCORPORATED IN MALAYSIA) REPORT ON THE FINANCIAL STATEMENTS Opinion We have audited the financial statements of UMW Oil & Gas Corporation Berhad, which comprise the statements of financial position as at 31 December 2016 of the Group and of the Company, and statements of comprehensive income, statements of changes in equity and statements of cash flows of the Group and of the Company for the year then ended, and notes to the financial statements, including a summary of significant accounting policies, as set out on pages 99 to 182. In our opinion, the accompanying financial statements give a true and fair view of the financial position of the Group and of the Company as at 31 December 2016, and of their financial performance and their cash flows for the year then ended in accordance with Malaysian Financial Reporting Standards (MFRS), International Financial Reporting Standards (IFRS) and the requirements of the Companies Act, 1965 in Malaysia. Basis for Opinion We conducted our audit in accordance with approved standards on auditing in Malaysia and International Standards on Auditing. Our responsibilities under those standards are further described in the Auditors responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Independence and other ethical responsibilities We are independent of the Group and of the Company in accordance with the By-Laws (on Professional Ethics, Conduct and Practice) of the Malaysian Institute of Accountants ( By-Laws ) and the International Ethics Standards Board for Accountants Code of Ethics for Professional Accountants ( IESBA Code ), and we have fulfilled our other ethical responsibilities in accordance with the By-Laws and the IESBA Code. Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the Group and of the Company for the current year. These matters were addressed in the context of our audit of the financial statements of the Group and of the Company as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context. We have fulfilled the responsibilities described in the Auditors responsibilities for the audit of the financial statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis of our audit opinion on the accompanying financial statements. Impairment of property, plant and equipment As at 31 December 2016, the property, plant and equipment of the Group mainly consist of drilling rigs, hydraulic workover units and drillingrelated equipment. The significant downturn in the oil and gas industry and the low utilisation of the drilling rigs and hydraulic workover units during the year are indication that the assets may be impaired. Management has performed an impairment assessment to estimate the value in use of the assets based on discounted future cash flows. This area was important to our audit due to the significance of the carrying value of the drilling rigs, hydraulic workover units, and drillingrelated equipment, as well as the significant judgment involved in formulating assumptions to the cash flow projections. Our audit procedures included, amongst others, the review of the underlying assumptions used to prepare the projections, such as the assets utilisation, operating day rates, and the duration of the current downturn in the industry. We corroborated the key assumptions with industry analysts views, management s plans and existing contracts, where applicable.

36 UMW OIL & GAS CORPORATION BERHAD 96 ANNUAL REPORT 2016 INDEPENDENT AUDITORS REPORT TO THE MEMBERS OF UMW OIL & GAS CORPORATION BERHAD (INCORPORATED IN MALAYSIA) Key Audit Matters (Cont d.) Impairment of property, plant and equipment (cont d.) We have also reviewed the methodology of impairment assessment and assessed the reasonableness of the discount factor used, and performed sensitivity analysis of the changes in key assumptions. Furthermore, we focused on the adequacy of the disclosures on the assumptions and the outcome of the impairment test. The Board of Directors conclusion on the impairment assessment and related disclosures are included in Note 4 of the financial statements. Inventory-related controls and stock takes As at 31 December 2016, the inventories of the Group mainly consist of raw materials, spare parts, and consumables used in the subsidiaries operations which entail the charter of drilling rigs and hydraulic-workover units. As such, the inventories are situated at multiple locations, both onshore and offshore. We have identified this as a key audit area due to the multiple locations of the inventories, and material misstatement arising from the risk of potential delays in the recording of the receipt and utilisation of inventories. We assessed through observation, interview and re-performance on a sample basis, the adequacy of group controls over the inventory, including the procedures for goods transferred between locations, guidelines for urgent purchases, the physical security of the inventory, and stock takes. We attended and observed physical stock takes conducted by management for selected locations to verify adherence to stock take processes. We sought to understand and corroborate the reasons for significant or unusual movements in inventory quantities between the accounting records and the physical stock takes, and we reviewed and tested management s reconciliation between the book inventory balance and the physical count results. We evaluated the roll forward of inventory from the point of stock take to the year end to assess for potential misstatement. INFORMATION OTHER THAN THE FINANCIAL STATEMENTS AND AUDITORS REPORT THEREON The directors of the Company are responsible for the other information. The other information comprises the information included in the annual report, but does not include the financial statements of the Group and of the Company and our auditors report thereon, which we obtained prior to the date of this auditors report, and the annual report, which is expected to be made available to us after the date of this auditors report. Our opinion on the financial statements of the Group and of the Company does not cover the other information and we do not and will not express any form of assurance conclusion thereon. In connection with our audit of the financial statements of the Group and of the Company, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial statements of the Group and of the Company or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed on the other information that we obtained prior to the date of this auditors report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. When we read the annual report, if we conclude that there is a material misstatement therein, we are required to communicate the matter to the directors of the Company and take appropriate action. RESPONSIBILITIES OF THE DIRECTORS FOR THE FINANCIAL STATEMENTS The directors of the Company are responsible for the preparation of financial statements of the Group and of the Company that give a true and fair view in accordance with Malaysian Financial Reporting Standards, International Financial Reporting Standards and the requirements of the Companies Act 1965 in Malaysia. The directors are also responsible for such internal control as the directors determine is necessary to enable the preparation of financial statements of the Group and of the Company that are free from material misstatement, whether due to fraud or error.

37 ANNUAL REPORT UMW OIL & GAS CORPORATION BERHAD RESPONSIBILITIES OF THE DIRECTORS FOR THE FINANCIAL STATEMENTS (CONT D.) In preparing the financial statements of the Group and of the Company, the directors are responsible for assessing the Group s and the Company s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or the Company or to cease operations, or have no realistic alternative but to do so. AUDITORS RESPONSIBILITIES FOR THE AUDIT OF THE FINANCIAL STATEMENTS Our objectives are to obtain reasonable assurance about whether the financial statements of the Group and of the Company as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with approved standards on auditing in Malaysia and International Standards on Auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with approved standards on auditing in Malaysia and International Standards on Auditing, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: Identify and assess the risks of material misstatement of the financial statements of the Group and of the Company, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group s and the Company s internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. Conclude on the appropriateness of the directors use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group s or the Company s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors report to the related disclosures in the financial statements of the Group and of the Company or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors report. However, future events or conditions may cause the Group or the Company to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the financial statements of the Group and of the Company, including the disclosures, and whether the financial statements of the Group and of the Company represent the underlying transactions and events in a manner that achieves fair presentation. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the financial statements of the Group. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

38 UMW OIL & GAS CORPORATION BERHAD 98 ANNUAL REPORT 2016 INDEPENDENT AUDITORS REPORT TO THE MEMBERS OF UMW OIL & GAS CORPORATION BERHAD (INCORPORATED IN MALAYSIA) AUDITORS RESPONSIBILITIES FOR THE AUDIT OF THE FINANCIAL STATEMENTS (CONT D.) From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the Group and of the Company for the current year and are therefore the key audit matters. We describe these matters in our auditors report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on the other legal and regulatory requirements In accordance with the requirements of the Companies Act, 1965 in Malaysia, we also report the following: a. In our opinion, the accounting and other records and the registers required by the Act to be kept by the Company and its subsidiaries of which we have acted as auditors have been properly kept in accordance with the provisions of the Act. b. We have considered the financial statements and the auditors reports of all the subsidiaries of which we have not acted as auditors, which are indicated in Note 33 to the financial statements, being financial statements that have been included in the consolidated financial statements. c. We are satisfied that the financial statements of the subsidiaries that have been consolidated with the financial statements of the Company are in form and content appropriate and proper for the purposes of the preparation of the consolidated financial statements and we have received satisfactory information and explanations required by us for those purposes. d. The auditors reports on the financial statements of the subsidiaries were not subject to any qualification and did not include any comment required to be made under Section 174(3) of the Act. OTHER REPORTING RESPONSIBILITIES The supplementary information set out in Note 40 on page 183 is disclosed to meet the requirement of Bursa Malaysia Securities Berhad and is not part of the financial statements. The directors are responsible for the preparation of the supplementary information in accordance with Guidance on Special Matter No. 1, Determination of Realised and Unrealised Profits or Losses in the Context of Disclosure Pursuant to Bursa Malaysia Securities Berhad Listing Requirements, as issued by the Malaysian Institute of Accountants ( MIA Guidance ) and the directive of Bursa Malaysia Securities Berhad. In our opinion, the supplementary information is prepared, in all material respects, in accordance with the MIA Guidance and the directive of Bursa Malaysia Securities Berhad. OTHER MATTERS This report is made solely to the members of the Company, as a body, in accordance with Section 174 of the Companies Act, 1965 in Malaysia and for no other purpose. We do not assume responsibility to any other person for the content of this report. ERNST & YOUNG AF: 0039 Chartered Accountants AHMAD ZAHIRUDIN BIN ABDUL RAHIM No. 2607/12/18(J) Chartered Accountant Kuala Lumpur, Malaysia 10 April 2017

39 ANNUAL REPORT UMW OIL & GAS CORPORATION BERHAD CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2016 Note RM 000 RM 000 ASSETS Non-current assets Property, plant and equipment 4 5,298,125 6,081,634 Land use rights 5 2,514 2,631 Intangible assets 6 Investment in associate 8 2,571 2,073 Deferred tax assets Derivative assets 10 5,071 2,636 Deposit at bank ,450 5,644,843 6,089,178 Current assets Inventories , ,508 Other investments 12 89,565 Receivables , ,331 Tax recoverable 2,948 2,696 Derivative assets Due from related companies 14 2,547 3,666 Deposits, cash and bank balances , , ,197 1,557,805 TOTAL ASSETS 6,550,040 7,646,983

40 UMW OIL & GAS CORPORATION BERHAD 100 ANNUAL REPORT 2016 CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2016 EQUITY AND LIABILITIES Note RM 000 RM 000 Non-current liabilities Deferred tax liabilities 9 1,098 Due to holding company ,000 Long term borrowings 16 2,272,773 1,746,965 2,580,773 1,748,063 Current liabilities Taxation 634 1,143 Short term borrowings 18 1,499,745 2,257,330 Payables , ,235 Due to related companies 14 2,290 2,775 1,708,066 2,555,483 Total liabilities 4,288,839 4,303,546 Equity Equity attributable to equity holders of the Company Share capital 20 1,081,000 1,081,000 Share premium 20 1,372,819 1,372,819 Other reserves , ,931 (Accumulated losses)/retained profits (1,033,129) 144,250 2,257,988 3,333,000 Non-controlling interests 3,213 10,437 Total equity 2,261,201 3,343,437 TOTAL EQUITY AND LIABILITIES 6,550,040 7,646,983 The accompanying accounting policies and explanatory notes form an integral part of the financial statements.

41 ANNUAL REPORT UMW OIL & GAS CORPORATION BERHAD CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2016 Note RM 000 RM 000 Revenue , ,877 Other operating income 23 27,650 35,994 Changes in inventories Finished goods purchased (70) (1,956) Raw materials and consumables used (54,425) (77,670) Employee benefits 24 (123,352) (188,561) Depreciation and amortisation (291,191) (246,119) Impairment provisions 25 (781,200) (347,722) Other operating expenses 26 (178,966) (324,230) Loss from operations (1,080,349) (310,354) Finance costs 27 (118,233) (64,059) Investment income 28 16,899 25,466 Share of results of associate Loss before tax (1,181,264) (348,426) Income tax expense 29 (2,183) (20,005) Loss for the year (1,183,447) (368,431) Other comprehensive income: Foreign currency translation 98, ,174 Cash flow hedges:- Fair value gain 8,437 3,805 Reclassified to profit or loss (5,746) (937) Other comprehensive income that may be reclassified to profit or loss in subsequent periods (net of tax): 101, ,042 Total comprehensive (loss)/income for the year (1,082,236) 135,611 Loss attributable to: Equity holders of the Company (1,177,379) (369,277) Non-controlling interests (6,068) 846 (1,183,447) (368,431) Total comprehensive (loss)/income attributable to: Equity holders of the Company (1,075,012) 133,174 Non-controlling interests (7,224) 2,437 (1,082,236) 135,611 Basic/diluted loss per share attributable to equity holders of the Company (sen) 30 (54.46) (17.08) The accompanying accounting policies and explanatory notes form an integral part of the financial statements.

42 UMW OIL & GAS CORPORATION BERHAD 102 ANNUAL REPORT 2016 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2016 l non-distributable l Distributable Gain on of derecognition Foreign Retained Share intercompany currency profits/ Non- Share Share options Capital financial translation Hedging (Accumulated controlling Total capital premium reserve reserve liabilities reserve reserve losses) Total interests equity RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 (Note 20) (Note 20) (Note 21) (Note 21) (Note 21) (Note 21) (Note 21) At 1 January ,081,000 1,372,819 3, , , ,527 3,199,826 8,000 3,207,826 (Loss)/profit for the year (369,277) (369,277) 846 (368,431) Other comprehensive income for the year 499,583 2, ,451 1, ,042 Total comprehensive income for the year 499,583 2,868 (369,277) 133,174 2, ,611 At 31 December ,081,000 1,372,819 3, , ,977 2, ,250 3,333,000 10,437 3,343,437 At 1 January ,081,000 1,372,819 3, , ,977 2, ,250 3,333,000 10,437 3,343,437 Loss for the year (1,177,379) (1,177,379) (6,068) (1,183,447) Other comprehensive income for the year 99,676 2, ,367 (1,156) 101,211 Total comprehensive income/(loss) for the year 99,676 2,691 (1,177,379) (1,075,012) (7,224) (1,082,236) At 31 December ,081,000 1,372,819 3, , ,653 5,559 (1,033,129) 2,257,988 3,213 2,261,201 The accompanying accounting policies and explanatory notes form an integral part of the financial statements.

43 ANNUAL REPORT UMW OIL & GAS CORPORATION BERHAD CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER RM 000 RM 000 CASH FLOWS FROM OPERATING ACTIVITIES Loss before tax (1,181,264) (348,426) Adjustments for: Depreciation and amortisation 291, ,119 Impairment loss on goodwill (Note 6) 11,291 Impairment loss on property, plant and equipment (Note 4) 780, ,431 Interest expense 118,233 64,059 Investment income (16,899) (25,466) Net loss on disposal of property, plant and equipment Property, plant and equipment written off 6,826 14,054 Share of results of associate (419) (521) Net fair value gain on derivatives (604) Net fair value loss/(gain) on investments in money market fund 52 (240) Provision for impairment in amount due from fellow subsidiaries 935 Net unrealised foreign exchange loss 17,430 1,586 Operating profit before working capital changes 16, ,352 Decrease in receivables 157, ,294 Decrease/(increase) in inventories 666 (64,631) (Decrease)/increase in payables (119,093) 26,557 Net changes in related companies balances (302) (235) Net cash generated from operations 55, ,337 Interest paid (115,450) (66,003) Taxes paid (3,947) (17,035) Net cash (used in)/generated from operating activities (63,953) 375,299

44 UMW OIL & GAS CORPORATION BERHAD 104 ANNUAL REPORT 2016 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2016 CASH FLOWS FROM INVESTING ACTIVITIES RM 000 RM 000 Interest received 16,288 24,389 Purchase of property, plant and equipment (57,036) (1,773,105) Proceeds from disposal of property, plant and equipment Proceeds from disposal of money market fund 90, ,013 Dividend received from an associate Cash outflow on investment in money market fund (1,351) (299,338) Net cash generated from/(used in) investing activities 49,487 (1,836,951) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds on loan advances received from holding company 308,000 Repayment of long term borrowings (259,614) (184,340) Drawdown of long term borrowings 646, ,660 Net movement in short term borrowings (784,355) 686,355 Dividend paid (21,620) Placement of restricted cash deposits in licensed bank (558,275) Net cash (used in)/generated from financing activities (647,600) 1,211,055 NET DECREASE IN CASH AND CASH EQUIVALENTS (662,066) (250,597) CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR 973,807 1,178,046 EFFECTS OF EXCHANGE RATE CHANGES 21,455 46,358 CASH AND CASH EQUIVALENTS AT END OF THE YEAR 333, ,807 Cash and cash equivalents comprise: Deposits with licensed banks - Non-current (Note 15) 336,450 Deposits with licensed banks - Current (Note 15) 483, ,364 Cash and bank balances (Note 15) 71, , , ,807 Less: Restricted cash (Note 15) (558,275) 333, ,807 The accompanying accounting policies and explanatory notes form an integral part of the financial statements.

45 ANNUAL REPORT UMW OIL & GAS CORPORATION BERHAD STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2016 Note RM 000 RM 000 ASSETS Non-current assets Property, plant and equipment 4 2,568 2,943 Investment in subsidiaries 7 2,248,700 2,336,729 Due from related companies 14 1,635,124 3,886,392 2,339,672 Current assets Other investments 12 75,642 Receivables 13 1,221 1,793 Tax recoverable 175 Due from related companies 14 96,478 1,679,681 Deposits, cash and bank balances , , ,462 2,483,183 TOTAL ASSETS 4,405,854 4,822,855 EQUITY AND LIABILITIES Non-current liabilities Due to holding company ,000 Long term borrowings , , , ,007 Current liabilities Taxation 619 Short term borrowings 18 1,035,674 1,437,410 Payables 19 9,273 8,302 Due to related companies 14 2,077 11,257 1,047,024 1,457,588 Total liabilities 2,031,056 2,160,595

46 UMW OIL & GAS CORPORATION BERHAD 106 ANNUAL REPORT 2016 STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2016 Equity Note RM 000 RM 000 Equity attributable to equity holders of the Company Share capital 20 1,081,000 1,081,000 Share premium 20 1,372,819 1,372,819 Other reserves 78,145 78,145 (Accumulated losses)/retained profits (157,166) 130,296 Total equity 2,374,798 2,662,260 TOTAL EQUITY AND LIABILITIES 4,405,854 4,822,855 The accompanying accounting policies and explanatory notes form an integral part of the financial statements.

47 ANNUAL REPORT UMW OIL & GAS CORPORATION BERHAD STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2016 Note RM 000 RM 000 Revenue 22 16,897 13,212 Other operating income 23 34,737 61,408 Employee benefits 24 (15,881) (18,368) Depreciation (953) (1,029) Impairment provisions 25 (320,376) Other operating expenses 26 (11,638) (11,210) (Loss)/profit from operations (297,214) 44,013 Finance costs 27 (57,857) (28,034) Investment income 28 69,297 62,999 (Loss)/profit before tax (285,774) 78,978 Income tax expense 29 (1,688) (3,178) (Loss)/profit for the year, representing total comprehensive (loss)/income for the year (287,462) 75,800 The accompanying accounting policies and explanatory notes form an integral part of the financial statements.

48 UMW OIL & GAS CORPORATION BERHAD 108 ANNUAL REPORT 2016 STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2016 l non-distributable l Distributable Gain on Retained derecognition profits/ Share Share of financial (Accumulated Total capital premium liabilities losses) equity RM 000 RM 000 RM 000 RM 000 RM 000 (Note 20) (Note 20) (Note 21) At 1 January ,081,000 1,372,819 78,145 54,496 2,586,460 Total comprehensive income 75,800 75,800 At 31 December ,081,000 1,372,819 78, ,296 2,662,260 At 1 January ,081,000 1,372,819 78, ,296 2,662,260 Total comprehensive loss (287,462) (287,462) At 31 December ,081,000 1,372,819 78,145 (157,166) 2,374,798 The accompanying accounting policies and explanatory notes form an integral part of the financial statements.

49 ANNUAL REPORT UMW OIL & GAS CORPORATION BERHAD STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER RM 000 RM 000 CASH FLOWS FROM OPERATING ACTIVITIES (Loss)/profit before tax (285,774) 78,978 Adjustments for: Depreciation of plant and equipment 953 1,029 Interest expense 57,857 28,034 Investment income (69,297) (62,999) Net unrealised foreign exchange loss/(gain) 10,246 (27,129) Property, plant and equipment written off 1 Net fair value loss/(gain) on investments in money market fund 52 (234) Dividend income (6,592) Loss on disposal of plant and equipment Provision for impairment in investment in subsidiary 288,029 Provision for impairment in amount due from subsidiaries 32,347 Operating profit before working capital changes 27,855 17,706 Decrease/(increase) in other receivables 498 (428) Decrease in other payables (57) (3,864) Net changes in related companies balances 123, ,374 Cash generated from operating activities 151, ,788 Tax paid (2,483) (2,069) Net cash generated from operating activities 149, ,719 CASH FLOWS FROM INVESTING ACTIVITIES Interest received 14,018 25,239 Advances to subsidiaries (285,409) (1,406,305) Purchase of plant and equipment (761) (1,608) Proceeds from disposal of plant and equipment Proceeds from disposal of money market fund 76, ,013 Cash outflow on investment in money market fund (737) (285,421) Dividend received from a subsidiary 6,592 Net cash used in investing activities (189,821) (1,457,980)

50 UMW OIL & GAS CORPORATION BERHAD 110 ANNUAL REPORT 2016 STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2016 CASH FLOWS FROM FINANCING ACTIVITIES RM 000 RM 000 Dividend paid (21,620) Repayment of long term borrowings (28,863) Drawdown of long term borrowings 730,646 Net movement in short term borrowings (486,047) 434,313 Proceeds on loan advances received from holding company 308,000 Interest paid (56,827) (22,766) Placement of restricted cash deposit in licensed bank (221,825) Net cash (used in)/generated from financing activities (485,562) 1,120,573 NET DECREASE IN CASH AND CASH EQUIVALENTS (526,304) (213,688) CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR 726, ,755 CASH AND CASH EQUIVALENTS AT END OF THE YEAR 199, ,067 Cash and cash equivalents comprise: Deposits with licensed banks (Note 15) 421, ,445 Cash and bank balances (Note 15) , , ,067 Less: Restricted cash (Note 15) (221,825) 199, ,067 The accompanying accounting policies and explanatory notes form an integral part of the financial statements.

51 ANNUAL REPORT UMW OIL & GAS CORPORATION BERHAD NOTES TO THE FINANCIAL STATEMENTS 1. CORPORATE INFORMATION UMW Oil & Gas Corporation Berhad ( UMW-OG ) is a public limited liability company, incorporated and domiciled in Malaysia, and is listed on the Main Market of Bursa Malaysia Securities Berhad ( Bursa Malaysia ). The registered office of UMW-OG is located at Level 18, Block 3A, Plaza Sentral, Jalan Stesen Sentral 5, Kuala Lumpur. The holding company of the Company is UMW Holdings Berhad ( UMWH ), a public limited liability company incorporated and domiciled in Malaysia and is listed on the Bursa Malaysia. The principal activity of the Company is to carry on the business of an investment holding company and to provide full corporate management, administrative and professional services as well as financial support to its subsidiary companies. The principal activities of the subsidiaries and associate are described in Notes 33 and 34, respectively. The Group is principally engaged in: (a) (b) the provision of drilling services for exploration, development and production wells and workover services to the upstream sector of the oil and gas industry; and the provision of threading, inspection and repair services for Oil Country Tubular Goods ( OCTG ) in Malaysia and overseas, with a focus on premium connections used in high-end and complex wells. The financial statements were authorised for issue by the Board of Directors in accordance with a resolution of the directors on 10 April SIGNIFICANT ACCOUNTING POLICIES 2.1 Basis of preparation The financial statements comply with Malaysian Financial Reporting Standards ( MFRS ), International Financial Reporting Standards ( IFRS ) and the requirements of the Companies Act, 1965 in Malaysia. On 1 January 2016, the Group and the Company adopted the new and amended MFRSs (collectively referred to as pronouncements ) issued by the Malaysian Accounting Standards Board ( MASB ) that are mandatory for the financial periods beginning on or after 1 January 2016 as described fully in Note 2.3. MASB has also issued new and revised MFRS which are not yet effective for the Group and the Company and therefore, have not been implemented by the Group and the Company in these financial statements as set out in Note 2.4. The financial statements of the Group and of the Company have been prepared on a historical cost basis unless otherwise indicated in the accounting policies below. The financial statements are presented in Ringgit Malaysia ( RM ) and all values are rounded to the nearest thousand (RM 000) except when otherwise indicated.

52 UMW OIL & GAS CORPORATION BERHAD 112 ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS 2. SIGNIFICANT ACCOUNTING POLICIES (CONT D.) 2.2 Summary of significant accounting policies (a) Basis of consolidation, subsidiaries and associate (i) Basis of consolidation The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at the reporting date. The financial statements of the Company and its subsidiaries used in the preparation of the consolidated financial statements are prepared as of the same reporting date as the Company. Consistent accounting policies are applied for like transactions and events in similar circumstances. The Company controls an investee if and only if the Company has all the following: - Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee); - Exposure, or rights, to variable returns from its investment with the investee; and - The ability to use its power over the investee to affect its returns. When the Company has less than a majority of the voting rights of an investee, the Company considers the following in assessing whether or not the Company s voting rights in an investee are sufficient to give it power over the investee: - The size of the Company s holding of voting rights relative to the size and dispersion of holdings of the other vote holders; - Potential voting rights held by the Company, other vote holders or other parties; - Rights arising from other contractual arrangements; and - Any additional facts and circumstances that indicate that the Company has, or does not have, the current ability to direct the relevant activities at the time that decisions need to be made, including voting patterns at previous shareholders meetings. Subsidiaries are consolidated from the effective date of acquisition, being a date on which the Group obtains control, and continue to be consolidated until the date that such control ceases, being the effective date of disposal. Intragroup transactions, balances and resulting unrealised gains are eliminated in full on consolidation. The consolidated financial statements reflect external transactions only. Unrealised losses are eliminated on consolidation unless costs cannot be recovered. Changes in the Group s ownership interests in subsidiaries that do not result in the Group losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of the Group s interests and noncontrolling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. The resulting difference is recognised directly in equity and attributed to owners of the Company.

53 ANNUAL REPORT UMW OIL & GAS CORPORATION BERHAD 2. SIGNIFICANT ACCOUNTING POLICIES (CONT D.) 2.2 Summary of significant accounting policies (Cont d.) (a) Basis of consolidation, subsidiaries and associate (Cont d.) (i) Basis of consolidation (Cont d.) Loss of control When the Group loses control of a subsidiary, a gain or loss calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the carrying amount of the assets and liabilities of the subsidiary and any goodwill outstanding (net of any non-controlling interest) at the date the Group loses control, is recognised in profit or loss. The subsidiary s cumulative gain or loss which has been recognised in other comprehensive income and accumulated in equity are reclassified to profit or loss or where applicable, transferred directly to retained earnings. The fair value of any investment retained in the former subsidiary at the date control is lost, is regarded as the cost on initial recognition of an investment in an associate. Business combinations Business combinations, other than business combinations under common control, are accounted for using the acquisition method. Identifiable assets acquired and liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The cost of an acquisition is measured as the aggregate of the consideration transferred measured at acquisitiondate fair value and the amount of any non-controlling interest in the acquiree. The Group elects on a transactionby-transaction basis whether to measure the non-controlling interests in the acquiree either at fair value or at the proportionate share of acquiree s identifiable net assets. For business combinations after 1 January 2011, acquisitionrelated costs are expensed as incurred. Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Subsequent changes in the fair value of the contingent consideration which is deemed to be an asset or liability, will be recognised in accordance with MFRS 139 either in profit or loss or as a change in other comprehensive income. If the contingent consideration is classified as equity, it will not be remeasured. Subsequent settlement is accounted for within equity. In instances where the contingent consideration does not fall within the scope of MFRS 139, it is measured in accordance with the appropriate MFRS. When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree. If the business combination is achieved in stages, the acquisition-date fair value of the acquirer s previously held equity interest in the acquiree is remeasured to fair value at the acquisition date through profit or loss. Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount recognised for non-controlling interests over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognised in profit or loss. The accounting policy for goodwill is set out in Note 2.2(h).

54 UMW OIL & GAS CORPORATION BERHAD 114 ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS 2. SIGNIFICANT ACCOUNTING POLICIES (CONT D.) 2.2 Summary of significant accounting policies (Cont d.) (a) Basis of consolidation, subsidiaries and associate (Cont d.) (i) Basis of consolidation (Cont d.) Business combinations under common control Business combinations under common control are accounted for in the consolidated accounts retrospectively from the date the ultimate holding company obtains the ownership interest. Assets and liabilities are recognised upon consolidation at their carrying amount in the consolidated financial statements of the ultimate holding company. Any difference between the fair value of the consideration paid and the amounts at which the assets and liabilities are recorded is recognised directly in equity. Non-controlling interests Non-controlling interests in the consolidated statement of comprehensive income and consolidated statement of financial position represent the portion of profit or loss or net assets in subsidiaries not held by the Group. Noncontrolling interests in the consolidated statements of financial position consist of the non-controlling interests share of the fair value of the identifiable assets and liabilities of the acquiree as at acquisition date and the noncontrolling interests share of movement in the acquiree s equity since then. Acquisitions of non-controlling interests are accounted for using the entity concept method, whereby the difference between the consideration and the book value of the share of the net assets acquired is recognised directly in equity. (ii) Subsidiaries A subsidiary is an entity over which the Group has all the following: - Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee); - Exposure, or rights, to variable returns from its investment with the investee; and - The ability to use its power over the investee to affect its returns. (iii) Associate An associate is an entity in which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies. Investment in associate is accounted for in the consolidated financial statements using the equity method of accounting as described in Note 2.2(a)(iv). (iv) Equity method of accounting Under the equity method, the investments in associate are carried in the consolidated statements of financial position at cost adjusted for post-acquisition changes in the Group s share of net assets of the associate. The Group s share of the net profit or loss of the associate is recognised in profit or loss. Where there has been a change recognised directly in the equity of the associate, the Group recognises its share of such changes.

55 ANNUAL REPORT UMW OIL & GAS CORPORATION BERHAD 2. SIGNIFICANT ACCOUNTING POLICIES (CONT D.) 2.2 Summary of significant accounting policies (Cont d.) (a) Basis of consolidation, subsidiaries and associate (Cont d.) (iv) Equity method of accounting (Cont d.) In applying the equity method, unrealised gains and losses on transactions between the Group and the associate are eliminated to the extent of the Group s interest in the associate. After application of the equity method, the Group determines whether it is necessary to recognise any additional impairment loss with respect to the Group s net investment in the associate. The Group determines at each reporting date whether there is any objective evidence that the investment in the associate is impaired. If this is the case, the Group calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value and recognises the amount in profit or loss. An associate is equity accounted for from the date on which the investee becomes an associate. Goodwill relating to an associate is included in the carrying amount of the investment and is not amortised. Any excess of the Group s share of the net fair value of the associate s identifiable assets, liabilities and contingent liabilities over the cost of the investments is excluded from the carrying amount of the investment and is instead included as income in the determination of the Group s share of the associate s profit or loss in the year in which the investment is acquired. When the Group s share of losses in the associate equals or exceeds its interest in the associate, including any longterm interests that, in substance, form part of the Group s net investment in the associate, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate. The most recent available audited financial statements of the associate are used by the Group in applying the equity method. Where the dates of the audited financial statements used are not coterminous with those of the Group, the share of results is arrived at from the last audited financial statements available and management financial statements to the end of the accounting year of the Group. Uniform accounting policies are adopted for like transactions and events in similar circumstances. On disposal of such investments, the difference between net disposal proceeds and their carrying amounts is included in profit or loss. (v) Separate financial statements In the separate financial statements of the Company and the Group s subsidiaries, investments in subsidiaries and associate are accounted for at cost less impairment losses. On disposal of such investments, the difference between net disposal proceeds and their carrying amounts is included in profit or loss. (b) Property, plant and equipment All items of property, plant and equipment are initially recorded at cost. The cost of an item of property, plant and equipment (including spare parts and standby-equipment) is recognised as an asset if, and only if, it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. Subsequent to initial recognition, property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. When significant parts of property, plant and equipment are required to be replaced in intervals, the Group recognises such parts as individual assets with specific useful lives and depreciation, respectively.

56 UMW OIL & GAS CORPORATION BERHAD 116 ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS 2. SIGNIFICANT ACCOUNTING POLICIES (CONT D.) 2.2 Summary of significant accounting policies (Cont d.) (b) Property, plant and equipment (Cont d.) Periodic survey and drydocking costs are incurred in connection with obtaining regulatory certification to operate the rigs on an ongoing basis. Costs associated with the certification are deferred and amortised on a straight-line basis over the period between surveys and drydocking. All other repair and maintenance costs are recognised in profit or loss as incurred. Assets-in-progress included in property, plant and equipment are not depreciated as these assets are not yet available for use. Depreciation of other property, plant and equipment is provided for on a straight-line basis over the estimated useful lives of the assets as follows: Rigs and hydraulic workover units ( HWUs ) Drilling equipment Buildings Plant and machinery Office equipment, furniture and fittings Motor vehicles Renovation and improvements years 2-30 years years 2-30 years 3-12 years 5 years 5 years The residual value, useful life and depreciation method are reviewed at each financial year end, and adjusted prospectively, if appropriate. An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss on derecognition of the asset is included in profit or loss in the period the asset is derecognised. The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. The policy for the recognition and measurement of impairment losses is in accordance with Note 2.2(r). (c) Land use rights Land use rights are initially measured at cost. Following initial recognition, land use rights are measured at cost less accumulated amortisation and accumulated impairment losses. The land use rights are amortised over their lease terms. Upon the disposal of land use rights, the difference between the net disposal proceeds and the net carrying amount is recognised in profit or loss. When an indication of impairment exists, the carrying amount of the land use rights is written down immediately to its recoverable value. The policy for the recognition and measurement of impairment losses is in accordance with Note 2.2(r).

57 ANNUAL REPORT UMW OIL & GAS CORPORATION BERHAD 2. SIGNIFICANT ACCOUNTING POLICIES (CONT D.) 2.2 Summary of significant accounting policies (Cont d.) (d) Financial assets Financial assets are recognised in the statements of financial position when, and only when, the Group becomes a party to the contractual provisions of the financial instrument. When financial assets are recognised initially, they are measured at fair value, plus, in the case of financial assets not at fair value through profit or loss, directly attributable transaction costs. The Group determines the classification of its financial assets at initial recognition, and the categories include financial assets at fair value through profit or loss, available-for-sale financial assets, held-to-maturity investments and loans and receivables. The Group does not have any financial assets designated as available-for-sale or held-to-maturity investments. (i) Financial assets at fair value through profit or loss Financial assets are classified as financial assets at fair value through profit or loss if they are held for trading or are designated as such upon initial recognition. Financial assets held for trading are derivatives (including separated embedded derivatives) or financial assets acquired principally for the purpose of selling in the near term. Subsequent to initial recognition, financial assets at fair value through profit or loss are measured at fair value. Any gains or losses arising from changes in fair value are recognised in profit or loss. Net gains or net losses on financial assets at fair value through profit or loss do not include exchange differences, interest and dividend income. Exchange differences, interest and dividend income on financial assets at fair value through profit or loss are recognised separately in profit or loss as part of other expenses or other income. Financial assets at fair value through profit or loss could be presented as current or non-current. Financial assets that are held primarily for trading purposes are presented as current whereas financial assets that are not held primarily for trading purposes are presented as current or non-current based on the settlement date. (ii) Loans and receivables Financial assets with fixed or determinable payments that are not quoted in an active market are classified as loans and receivables. Subsequent to initial recognition, loans and receivables are measured at amortised cost using the effective interest method. Gains and losses are recognised in profit or loss when the loans and receivables are derecognised or impaired, and through amortisation process. Loans and receivables are classified as current assets, except for those with maturity dates later than 12 months from the reporting date are classified as non-current. Loans and receivables of the Group comprise of trade and other receivables (other than deferred expenses, accrued income and prepayments), due from related companies, deposits and cash and bank balances.

58 UMW OIL & GAS CORPORATION BERHAD 118 ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS 2. SIGNIFICANT ACCOUNTING POLICIES (CONT D.) 2.2 Summary of significant accounting policies (Cont d.) (d) Financial assets (Cont d.) A financial asset is derecognised when the contractual right to receive cash flows from the asset has expired. On derecognition of a financial asset in its entirety, the difference between the carrying amount and the sum of the consideration received and any cumulative gain or loss that had been recognised in other comprehensive income is recognised in profit or loss. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the market place concerned. All regular way purchases and sales of financial assets are recognised or derecognised on the trade date i.e. the date that the Group commits to purchase or sell the asset. (e) Impairment of financial assets The Group assesses at each reporting date whether there is any objective evidence that a financial asset is impaired. Trade and other receivables and other financial assets carried at amortised cost To determine whether there is objective evidence that an impairment loss on financial assets has occurred, the Group considers factors such as the probability of insolvency or significant financial difficulties of the debtor and default or significant delay in payments. For certain categories of financial assets, such as trade receivables, assets that are assessed not to be impaired individually are subsequently assessed for impairment on a collective basis based on similar risk characteristics. Objective evidence of impairment for a portfolio of receivables could include the Group s past experience of collecting payments, an increase in the number of delayed payments in the portfolio that passed the average credit period and observable changes in national or local economic conditions that correlate with default on receivables. If any such evidence exists, the amount of impairment loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows discounted at the financial asset s original effective interest rate. The impairment loss is recognised in profit or loss. The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable becomes uncollectible, it is written off against the allowance account. If in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed to the extent that the carrying amount of the asset does not exceed its amortised cost at the reversal date. The amount of reversal is recognised in profit or loss. (f) Cash and cash equivalents Cash and cash equivalents include cash and bank balances and deposits at call with licensed banks with a maturity of three months or less.

59 ANNUAL REPORT UMW OIL & GAS CORPORATION BERHAD 2. SIGNIFICANT ACCOUNTING POLICIES (CONT D.) 2.2 Summary of significant accounting policies (Cont d.) (g) Inventories Inventories are stated at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. In arriving at net realisable value, due allowance has been made for obsolete and slow-moving items. Costs incurred in bringing the inventories to their present location and condition are accounted for as follows: Finished goods, raw materials, spares and consumables - Weighted average Cost of finished goods, raw materials, spares and consumables represent cost of purchase. (h) Intangible assets Goodwill Goodwill acquired in a business combination is initially measured at cost, being the excess of the cost of business combination over the Group s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities. Following the initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is not amortised but instead, it is reviewed for impairment, annually or more frequently, if events or changes in circumstances indicate that the carrying value may be impaired. On disposal of an entity, the carrying amount of goodwill is taken into account in determining gains and losses. For the purpose of impairment testing, goodwill acquired is allocated, from the acquisition date, to each of the Group s Cash- Generating Units ( CGU ) that are expected to benefit from the synergies of the combination. The CGU to which goodwill has been allocated is tested for impairment annually and whenever there is an indication that the CGU may be impaired, by comparing the carrying amount of the CGU, including the allocated goodwill, with the recoverable amount of the CGU. Where the recoverable amount of the CGU is less than the carrying amount, an impairment loss is recognised in profit or loss. Impairment losses recognised for goodwill are not reversed in subsequent periods. Where goodwill forms part of a CGU and part of the operation within that CGU is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative fair value of the operation disposed of and the portion of the CGU retained. (i) Foreign currencies (i) Functional and presentation currency The financial statements of each entity in the Group are measured using the currency of the primary economic environment in which the entity operates ( the functional currency ). The consolidated financial statements are presented in RM, which is also the Company s functional currency.

60 UMW OIL & GAS CORPORATION BERHAD 120 ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS 2. SIGNIFICANT ACCOUNTING POLICIES (CONT D.) 2.2 Summary of significant accounting policies (Cont d.) (i) Foreign currencies (Cont d.) (ii) Foreign currency transactions Transactions in currencies other than the Company s and its subsidiaries functional currency ( foreign currencies ) are initially converted into functional currency at rates of exchange ruling at the transaction dates. Non-monetary items At each financial reporting date, foreign currency non-monetary items which are carried at historical cost are translated using the historical rate as of the date of acquisition and non-monetary items which are carried at fair value are translated using the exchange rate when the fair values were determined. Monetary items At each reporting date, monetary items denominated in foreign currencies are translated into functional currency at exchange rates ruling at that date. Exchange differences arising on the settlement of monetary items, and on the translation of monetary items, are included in profit or loss for the period. Exchange differences arising on monetary items that form part of the Group s net investment in foreign operation are taken directly to the foreign currency translation reserve within other comprehensive income until the disposal of the foreign operations, at which time they are recognised in profit or loss. (iii) Foreign operations Financial statements of foreign subsidiaries which are consolidated are translated at year-end exchange rates with respect to the assets and liabilities, and at average exchange rates for the year, which approximate the exchange rates at the dates of the transactions with respect to profit or loss. All resulting translation differences are included in the foreign currency translation reserve within other comprehensive income. Goodwill and fair value adjustments arising on the acquisition of a foreign operation on or after 1 January 2006 are treated as assets and liabilities of the foreign operation and are recorded in the functional currency of the foreign operation and translated at the closing rate at the reporting date. Goodwill and fair value adjustments arising on the acquisition of a foreign operation before 1 January 2006 are deemed to be assets and liabilities of the parent company and are recorded in RM at the exchange rate ruling at the date of the transaction. (j) Financial liabilities Financial liabilities are classified according to the substance of the contractual arrangements entered into and the definition of a financial liability. Financial liabilities, within the scope of MFRS 139, are recognised in the statements of financial position when, and only when, the Group becomes a party to the contractual provisions of the financial instrument. Financial liabilities are classified as either financial liabilities at fair value through profit or loss or other financial liabilities.

61 ANNUAL REPORT UMW OIL & GAS CORPORATION BERHAD 2. SIGNIFICANT ACCOUNTING POLICIES (CONT D.) 2.2 Summary of significant accounting policies (Cont d.) (j) Financial liabilities (Cont d.) (i) Financial liabilities at fair value through profit or loss Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as fair value through profit or loss. Financial liabilities held for trading include derivatives entered into by the Group that do not meet the hedge accounting criteria. Derivative liabilities are initially measured at fair value and subsequently stated at fair value, with any resultant gains or losses recognised in profit or loss. Net gains or losses on derivatives include exchange differences. The Group and the Company have not designated any financial liabilities as at fair value through profit or loss. (ii) Other financial liabilities The Group s other financial liabilities include trade payables, other payables (other than deferred income and provisions), loans and borrowings and amounts due to related companies. Trade and other payables are recognised initially at fair value plus directly attributable transaction costs and subsequently measured at amortised cost using the effective interest method. Loans and borrowings are recognised initially at fair value, net of transaction costs incurred, and subsequently measured at amortised cost using the effective interest method. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting date. For other financial liabilities, gains and losses are recognised in profit or loss when the liabilities are derecognised, and through the amortisation process. A financial liability is derecognised when the obligation under the liability is extinguished. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and a recognition of a new liability, and the difference in the respective carrying amounts is recognised in profit or loss. (k) Offsetting of financial instruments Financial assets and financial liabilities are offset and the net amount is reported in the statements of financial position if, and only if, there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the assets and settle the liabilities simultaneously.

62 UMW OIL & GAS CORPORATION BERHAD 122 ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS 2. SIGNIFICANT ACCOUNTING POLICIES (CONT D.) 2.2 Summary of significant accounting policies (Cont d.) (l) Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of economic resources will be required to settle the obligation and the amount of the obligation can be estimated reliably. Provisions are reviewed at each reporting date and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of economic resources will be required to settle the obligation, the provision is reversed. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, where appropriate, the risks specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost. (m) Borrowing costs Borrowing costs are capitalised as part of the cost of a qualifying asset if they are directly attributable to the acquisition, construction or production of that asset. Capitalisation of borrowing costs commences when the activities to prepare the asset for its intended use or sale are in progress and the expenditures and borrowing costs are incurred. Borrowing costs are capitalised until the assets are substantially completed for their intended use or sale. All other borrowing costs are recognised in profit or loss in the period they are incurred. Borrowing costs consist of interest and other costs that the Group incurred in connection with the borrowing of funds. (n) Income tax Income tax on the profit or loss for the period comprises current tax and deferred tax. Current tax assets and liabilities are measured at the amounts expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amounts are those that are enacted or substantively enacted by the reporting date. Current taxes are recognised in profit or loss except to the extent that the tax relates to items recognised outside profit or loss, either in other comprehensive income or directly in equity. Deferred tax is provided using the liability method on temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax liabilities are recognised for all temporary differences, except where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and in respect of taxable temporary differences associated with investments in subsidiaries and associate, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred tax assets are recognised for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilised except in respect of deductible temporary differences associated with investments in subsidiaries and associate, deferred tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

63 ANNUAL REPORT UMW OIL & GAS CORPORATION BERHAD 2. SIGNIFICANT ACCOUNTING POLICIES (CONT D.) 2.2 Summary of significant accounting policies (Cont d.) (n) Income tax (Cont d.) The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax assets to be utilised. Unrecognised deferred tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax assets to be utilised. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted at the reporting date. Deferred tax relating to items recognised outside profit or loss is recognised outside profit or loss. Deferred tax items are recognised in correlation to the underlying transaction either in other comprehensive income or directly in equity and deferred tax arising from a business combination is adjusted against goodwill on acquisition. Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority. (o) Revenue recognition Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. Revenue is measured at the fair value of consideration received or receivable. (i) Revenue from provision of drilling and workover services and related expenses Revenue from the provision of drilling and workover services include minimum lease payments from customers under day-rate based contracts and other services. Revenue generated from day-rate based contracts, which are classified as operating leases by the Group, are recognised over the period the service is rendered. Day-rate based contracts may include lump-sum fee for mobilisation and demobilisation which are recognised based on the policies stated in Note 2.2(o)(ii) and (iii). Fees received from customer under contract for upgrade to the rig is deferred and recognised over the contract term. Additional payments for meeting or exceeding certain performance targets are recognised when it is probable that the economic benefits associated with the transaction will flow to the entity. (ii) Lump sum mobilisation fees received Lump sum mobilisation fees received on drilling and workover services contracts are deferred and recognised on a straight-line basis over the period that the related drilling services are performed. Mobilisation costs incurred as part of a contract are deferred and recognised as expense over the contract period. The costs of relocating drilling rigs that are not under a contract are expensed as incurred.

64 UMW OIL & GAS CORPORATION BERHAD 124 ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS 2. SIGNIFICANT ACCOUNTING POLICIES (CONT D.) 2.2 Summary of significant accounting policies (Cont d.) (o) Revenue recognition (Cont d.) (iii) Demobilisation fees received Demobilisation costs are costs related to the transfer of a drilling rig to a safe harbour or different geographical area and are expensed as incurred. Demobilisation fees on drilling and workover services contracts are recognised as and when services are rendered, or at the point when it becomes known and certain that demobilisation fee can be charged to the customer. (iv) Sale of goods Revenue from sale of goods is recognised net of sales discounts when transfer of significant risks and rewards of ownership has been completed. Revenue is recognised net of sales tax, goods and service tax and includes excise duties. (v) Rendering of services Revenue from services rendered is recognised net of service tax on accrual basis as and when services are performed. (vi) Rental income Rental income from operating leases are accounted for on a straight-line basis over the lease terms. (vii) Dividend income Dividend income is recognised when the shareholders rights to receive payment is established. (viii) Interest income Interest income is recognised using the effective interest method. (ix) Management fees Management fees are recognised when services are rendered.

65 ANNUAL REPORT UMW OIL & GAS CORPORATION BERHAD 2. SIGNIFICANT ACCOUNTING POLICIES (CONT D.) 2.2 Summary of significant accounting policies (Cont d.) (p) Leases (i) As lessee A lease is recognised as a finance lease if it transfers substantially to the Group all the risks and rewards incidental to ownership. All other leases are classified as operating leases. Finance lease assets are capitalised at the lower of the fair value of the leased asset or the present value of the minimum lease payments, at the inception of the lease. The corresponding lease obligations, net of finance charges are included in borrowings. The interest rate implicit in the lease is used as the discount factor in calculating the present value of the minimum lease payments. Initial direct costs incurred are included as part of the asset. The finance charge is allocated to periods during the lease term so as to produce a constant periodic rate of interest on the outstanding balance of the liability for each period. The depreciation policy for assets held under finance leases is consistent with that for depreciable property, plant and equipment as described in Note 2.2(b). Lease rental payments on operating leases are recognised in profit or loss on a straight-line basis over the period of the lease. (ii) As lessor Leases where the Group retains substantially all the risks and rewards of ownership of the asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognised over the lease term on the same bases as rental income. The accounting policy for rental income is set out in Note 2.2(o)(vi). (q) Employee benefits (i) Short term benefits Wages, salaries, bonuses and social security contributions are recognised as an expense in the period in which the associated services are rendered by employees. Short term accumulating compensated absences such as paid annual leave are recognised when services are rendered by employees that increase their entitlement to future compensated absences, and short term non-accumulating compensated absences such as sick leave are recognised when the absences occur. (ii) Defined contribution plans Defined contribution plans are post-employment benefit plans under which the Group pays fixed contributions into separate entities or funds and will have no legal or constructive obligation to pay further contributions if any of the funds do not hold sufficient assets to pay all employee benefits relating to employee services in the current and preceding financial years. As required by law, companies in Malaysia make contributions to the state pension scheme, the Employees Provident Fund. Some of the Group s foreign subsidiaries also make contribution to their respective countries statutory pension schemes. The contributions are recognised as an expense in profit or loss as incurred.

66 UMW OIL & GAS CORPORATION BERHAD 126 ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS 2. SIGNIFICANT ACCOUNTING POLICIES (CONT D.) 2.2 Summary of significant accounting policies (Cont d.) (r) Impairment of non-financial assets The carrying amounts of assets, other than inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, the asset s recoverable amount is estimated to determine the amount of impairment loss. For the purpose of impairment testing of these assets, recoverable amount is determined on an individual asset basis unless the asset does not generate cash flows that are largely independent of those from other assets. If this is the case, recoverable amount is determined for the CGU to which the asset belongs. An asset s recoverable amount is the higher of the asset s or CGU s fair value less costs to sell and its value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. Impairment losses recognised in respect of a CGU or groups of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to those units or groups of units and then, to reduce the carrying amount of the other assets in the unit or groups of units on a pro-rata basis. An impairment loss is recognised in profit or loss in the period in which it arises. Impairment loss on goodwill is not reversed in a subsequent period. An impairment loss for an asset other than goodwill is reversed if, and only if, there has been a change in the assumptions used to determine the asset s recoverable amount since the last impairment loss was recognised. The carrying amount of an asset other than goodwill is increased to its revised recoverable amount, provided that this amount does not exceed the carrying amount that would have been determined (net of amortisation or depreciation) had no impairment loss been recognised for the asset in prior years. A reversal of impairment loss for an asset other than goodwill is recognised in profit or loss. (s) Segment reporting For management purposes, the Group is organised into operating segments based on nature of services which are managed by the respective segment managers responsible for the performance of the respective segments under their charge. The segment managers report directly to the President who regularly review the segment results in order to allocate resources to the segments and to assess the segment performance. Additional disclosures on each of these segments are shown in Note 32, including the factors used to identify the reportable segments and the measurement basis of segment information. (t) Fair value measurement MFRS 13, Fair Value Measurement prescribed that fair value of an asset or a liability, except for lease transactions, is determined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The measurement assumes that the transaction to sell the asset or transfer the liability takes place either in the principal market or in the absence of a principal market, in the most advantageous market.

67 ANNUAL REPORT UMW OIL & GAS CORPORATION BERHAD 2. SIGNIFICANT ACCOUNTING POLICIES (CONT D.) 2.2 Summary of significant accounting policies (Cont d.) (t) Fair value measurement (Cont d.) Financial instruments The fair value of financial instruments that are actively traded in organised financial markets is determined by reference to quoted market bid prices at the close of business at the end of the reporting date. For financial instruments where there is no active market, fair value is determined using valuation techniques. Such techniques may include using recent arm s length market transactions; reference to the current fair value of another instrument that is substantially the same; discounted cash flow analysis or other valuation models. Where fair value cannot be reliably estimated, assets are carried at cost less impairment losses, if any. (u) Hedge accounting The Group uses interest rate swaps to manage its exposures to interest rate risk. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative. Any gains or losses arising from changes in the fair value of derivatives are taken directly to profit or loss, except for the effective portion of cash flow hedges, which is recognised in other comprehensive income and later reclassified to profit or loss when the hedge item affects profit or loss. For the purpose of hedge accounting, hedging relationship is classified as: (i) (ii) (iii) Fair value hedges, when hedging the exposure to changes in the fair value of a recognised asset or liability or an unrecognised firm commitment (except for foreign currency risk); or Cash flow hedges, when hedging exposure to variability in cash flows that is either attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction or the foreign currency risk in an unrecognised firm commitment; or Hedges of a net investment in a foreign operation. At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which the Group wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the entity will assess the hedging instrument s effectiveness in offsetting the exposure to changes in the hedged item s fair value or cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in fair value or cash flows and are assessed on an ongoing basis to determine that they actually have been highly effective throughout the financial reporting periods for which they were designated.

68 UMW OIL & GAS CORPORATION BERHAD 128 ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS 2. SIGNIFICANT ACCOUNTING POLICIES (CONT D.) 2.2 Summary of significant accounting policies (Cont d.) (u) Hedge accounting (Cont d.) Hedges that meet the strict criteria for hedge accounting are accounted for, as described below: Cash flow hedges The effective portion of the gain or loss on the hedging instrument is recognised directly in other comprehensive income into cash flow hedge reserve, while any ineffective portion is recognised immediately in profit or loss as other operating expenses. Amounts recognised in other comprehensive income previously are reclassified from equity to profit or loss when the hedged transaction affects profit or loss, such as when the hedged interest income or interest expense is recognised or when a forecast sale occurs. Where the hedged item is a non-financial asset or a non-financial liability, the amounts recognised previously in other comprehensive income are transferred to the initial carrying amount of the non-financial asset or liability. If the forecast transaction or firm commitment is no longer expected to occur, the cumulative gain or loss previously recognised in other comprehensive income is reclassified from equity to profit or loss. If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked, any cumulative gain or loss previously recognised in other comprehensive income remain in equity until the forecast transaction or firm commitment affects profit or loss. (v) Share capital An equity instrument is any contract that evidences a residual interest in the assets of the Group and the Company after deducting all of its liabilities. Ordinary shares are equity instruments. Ordinary shares are recorded at the proceeds received, net of directly attributable incremental transaction costs. Ordinary shares are classified as equity. Dividends on ordinary shares are recognised in equity in the period in which they are declared. 2.3 Changes in accounting policies The accounting policies adopted are consistent with those of the previous financial year except as follows: On 1 January 2016, the Group and the Company adopted the following amended MFRSs mandatory for annual financial periods beginning on or after 1 January Description Amendments to MFRS 7: Financial Instruments: Disclosures (Annual Improvements to Cycle) Amendments to MFRS 119: Employee Benefits (Annual Improvements to Cycle) Amendments to MFRS 116 and MFRS 138: Clarification of Acceptable Methods of Depreciation and Amortisation Amendments to MFRS 11: Accounting for Acquisitions of interests in Joint Operations Amendments to MFRS 127: Separate Financial Statements: Equity Method in Separate Financial Statements Amendments to MFRS 101: Presentation of Financial Statements: Disclosure Initiatives Amendments to MFRS 10, MFRS 12 and MFRS 128: Investment Entities: Applying the Consolidation Exception MFRS 14 Regulatory Deferral Accounts Adoption of the above pronouncements did not have any effect on the financial performance or position of the Group and the Company.

69 ANNUAL REPORT UMW OIL & GAS CORPORATION BERHAD 2. SIGNIFICANT ACCOUNTING POLICIES (CONT D.) 2.4 Standards issued but not yet effective The pronouncements that are issued but not yet effective up to the date of issuance of the Group s and the Company s financial statements are disclosed below. The Group and the Company intend to adopt these standards, if applicable, when they become effective. Description Effective for annual periods beginning on or after Amendments to MFRS 12 Disclosure of Interests in Other Entities (Annual Improvements Cycle) 1 January 2017 MFRS 107 Disclosures Initiatives (Amendments to MFRS 107) 1 January 2017 MFRS 112 Recognition of Deferred Tax for Unrealised Losses (Amendments to MFRS 112) 1 January 2017 Amendments to MFRS 1 First-time Adoption of Malaysian Financial Reporting Standards (Annual Improvements Cycle) 1 January 2018 MFRS 2 Classification and Measurement of Share-based Payment Transactions (Amendments to MFRS 2) 1 January 2018 MFRS 15 Revenue from Contracts with Customers 1 January 2018 MFRS 9 Financial Instruments 1 January 2018 Amendments to MFRS 15 Revenue from Contracts with Customers: Clarifications 1 January 2018 Amendments to MFRS 128 Investments in Associates and Joint Ventures (Annual Improvements Cycle) 1 January 2018 Amendment to MFRS 140: Investment Property: Transfer of Investment Property 1 January 2018 IC Interpretation: Foreign Currency Transactions and Advance Consideration 1 January 2018 MFRS 16 Leases 1 January 2019 Amendments to MFRS 10 and 128: Sale or Contribution of Assets Date yet to be between an Investor and its Associate or Joint Venture confirmed The adoption of the above pronouncements is not expected to have a material impact on the financial statements in the period of initial application except for those discussed below: MFRS 15 Revenue from Contracts with Customers MFRS 15 establishes a new five-step models that will apply to revenue arising from contracts with customers. MFRS 15 will supersede the current revenue recognition guidance including MFRS 118 Revenue and the related interpretations when it becomes effective. The core principle of MFRS 15 is that an entity should recognise revenue which depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Under MFRS 15, an entity recognises revenue when (or as) a performance obligation is satisfied, i.e. when control of the goods or services underlying the particular performance obligation is transferred to the customer. Either a full or modified retrospective application is required for annual periods beginning on or after 1 January 2018 with early adoption permitted. The Group and the Company will assess the impact of these amendments and intend to adopt the new standard on the effective date.

70 UMW OIL & GAS CORPORATION BERHAD 130 ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS 2. SIGNIFICANT ACCOUNTING POLICIES (CONT D.) 2.4 Standards issued but not yet effective (Cont d.) MFRS 9 Financial Instruments In November 2014, MASB issued the final version of MFRS 9 Financial Instruments which reflects all phases of the financial instruments project and replaces MFRS 139 Financial Instruments: Recognition and Measurement and all previous versions of MFRS 9. The standard introduces new requirements for classification and measurement, impairment and hedge accounting. MFRS 9 is effective for annual periods beginning on or after 1 January 2018, with early application permitted. Retrospective application is required, but comparative information is not compulsory. The Group and the Company will assess the impact of these amendments and intend to adopt the new standard on the effective date. MFRS 16 Leases MFRS 16 will replace MFRS 117 Leases, IC Interpretation 4 Determining whether an Arrangement contains a Lease, IC Interpretation 115 Operating Lease-Incentives and IC Interpretation 127 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. MFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model similar to the accounting for finance leases under MFRS 117. At the commencement date of a lease, a lessee will recognise a liability to make lease payments and an asset representing the right to use the underlying asset during the lease term. Lessees will be required to recognise interest expense on the lease liability and the depreciation expense on the right-of-use asset. Lessor accounting under MFRS 16 is substantially the same as the accounting under MFRS 117. Lessors will continue to classify all leases using the same classification principle as in MFRS 117 and distinguish between two types of leases: operating and finance leases. MFRS 16 is effective for annual periods beginning on or after 1 January Early application is permitted but not before an entity applies MFRS 15. A lessee can choose to apply the standard using either a full retrospective or a modified retrospective approach. The Group is currently assessing the impact of MFRS 16 and plans to adopt the new standard on the required effective date.

71 ANNUAL REPORT UMW OIL & GAS CORPORATION BERHAD 3. SIGNIFICANT ACCOUNTING ESTIMATES AND ASSUMPTIONS 3.1 Significant accounting estimates and assumptions Key sources of estimation uncertainty The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below: (i) Deferred tax assets Deferred tax assets are recognised for all unutilised tax losses, unabsorbed capital allowances and unabsorbed reinvestment allowances to the extent that it is probable that taxable profit will be available against which the losses, capital allowances and reinvestment allowances can be utilised. Significant management judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and level of future taxable profits together with future tax planning strategies. The total carrying value of recognised and unrecognised tax losses, capital allowances and reinvestment allowances of the Group are as disclosed in Note 9. (ii) Useful lives and residual values of rigs, HWUs, drilling equipment, and plant and machinery The cost of rigs, HWUs, drilling equipment, and plant and machinery is depreciated on a straight-line basis over their estimated useful lives after allowing for residual values. Management estimates the useful lives and residual values by applying assumptions and estimates that reflect both historical experience and expectations regarding future operations, rig utilisation and asset performance, and also based on the common life expectancies applied in the respective industries. Changes in the expected level of usage and technological developments could impact the economic useful lives and the residual values of these assets, therefore, future depreciation charges could be revised. The carrying amount of the Group s rigs, HWUs, drilling equipment, and plant and machinery at the reporting date is disclosed in Note 4. During the financial year ended 31 December 2016, the Group has revised the residual value of its rigs at the end of useful life due to existing market conditions. The revision was accounted for prospectively as a change in accounting estimate and as a result, the annual depreciation charge in the current and future financial years has increased by RM12,492,000. (iii) Impairment of property, plant and equipment During the current financial year, the Group has recognised impairment losses in respect of property, plant and equipment. The management carried out the impairment test based on value in use of the CGU to which the property, plant and equipment are allocated. Estimating the value in use requires the management to make an estimate of the expected future cash flows from the CGU and also to choose a suitable discount rate in order to calculate the present value of those cash flows. Further details of the impairment losses recognised are disclosed in Note 4.

72 UMW OIL & GAS CORPORATION BERHAD 132 ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS 4. PROPERTY, PLANT AND EQUIPMENT Group Cost Rigs, HWUs and drilling Plant and Assets-in- **Other Buildings equipment machinery progress assets Total RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 At 1 January ,440 4,043,178 65, ,842 20,487 4,474,259 Exchange differences 3, ,891 4,602 71,660 1, ,984 Additions ,575 8,454 1,703,107 13,172 1,780,988 Write-offs (16,656) (161) (16,817) Disposals (1,791) (197) (387) (2,375) Reclassification 2,029,456 (2,027,986) (1,470) At 31 December 2015/1 January ,401 7,011,653 78,171 61,623 33,191 7,219,039 Exchange differences (467) 301, , ,576 Additions ,419 2,638 26,630 2,170 57,036 Write-offs (8,886) (1,251) (463) (10,600) Disposals (9) (2,621) (783) (1,070) (4,483) Reclassification 52, (52,904) (98) At 31 December ,104 7,379,536 80,440 38,046 34,442 7,566,568 Accumulated depreciation At 1 January , ,566 34,428 10, ,548 Exchange differences ,905 2, ,279 Depreciation charge for the year ,664 5,463 4, ,065 Write-offs (2,640) (123) (2,763) Disposals (1,465) (177) (243) (1,885) Reclassification 868 (868) At 31 December 2015/1 January , ,898 41,988 13, ,244 Exchange differences 18 65, ,868 Depreciation charge for the year ,007 5,895 10, ,136 Write-offs (2,186) (1,249) (339) (3,774) Disposals (9) (2,282) (717) (449) (3,457) Reclassification 897 (897) At 31 December ,525 1,067,900 46,371 23,221 1,146,017

73 ANNUAL REPORT UMW OIL & GAS CORPORATION BERHAD 4. PROPERTY, PLANT AND EQUIPMENT (CONT D.) Group (Cont d.) Accumulated impairment losses Rigs, HWUs and drilling Plant and Assets-in- **Other Buildings equipment machinery progress assets Total RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 At 1 January ,730 5,730 Impairment losses (Note 25) 336, ,431 At 31 December 2015/1 January , ,161 Impairment losses (Note 25) 3, ,767 21,666 1, ,265 At 31 December ,081 1,095,928 21,666 1,751 1,122,426 Net carrying amount At 31 December ,498 5,215,708 12,403 38,046 9,470 5,298,125 At 31 December ,839 5,937,594 36,183 61,623 19,395 6,081,634

74 UMW OIL & GAS CORPORATION BERHAD 134 ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS 4. PROPERTY, PLANT AND EQUIPMENT (CONT D.) Company Cost **Other Assets-inassets progress Total RM 000 RM 000 RM 000 At 1 January , ,010 Additions 1, ,608 Write-off (2) (2) Disposals (128) (128) Reclassification 167 (167) At 31 December 2015/1 January , ,488 Additions Disposals (183) (183) Reclassification 69 (69) At 31 December , ,066 Accumulated depreciation At 1 January ,517 1,517 Depreciation charge for the year 1,029 1,029 Write-off (1) (1) At 31 December 2015/1 January ,545 2,545 Depreciation charge for the year At 31 December ,498 3,498 Net Carrying Amount At 31 December , ,568 At 31 December , ,943 ** Included in the other assets are office equipment, furniture and fittings, renovation and improvements.

75 ANNUAL REPORT UMW OIL & GAS CORPORATION BERHAD 4. PROPERTY, PLANT AND EQUIPMENT (CONT D.) (a) (b) The net book values of property, plant and equipment held under finance lease arrangements as at 31 December 2016 for the Group and the Company was RM Nil (2015: RM3,000). During the financial year, the Group had capitalised within property, plant and equipment: (i) Finance cost of RM Nil (2015: RM7,883,000), as disclosed in Note 27. (ii) Employee benefits of RM Nil (2015: RM10,337,000), as disclosed in Note 24. (c) During the financial year, certain subsidiaries of the Group within the drilling services segment and oilfield services segment carried out a review of the recoverable amounts of their property, plant and equipment due to persistent depressed oil prices that had impacted demand for the Group s assets and services. An impairment loss of RM780,265,000 (2015: RM336,431,000), representing write-down of the assets to the recoverable amount was recognised in Impairment provisions in the statement of comprehensive income for the financial year ended 31 December 2016, in respect of assets with recoverable amounts of RM5,194,005,185 (2015: RM1,548,100,000). The recoverable amount of the rigs, HWUs and drilling equipment were determined based on value in use of each asset, based on their respective cash flow projections discounted at pre-tax discount rates up to 12.9% (2015: 16.9%). The calculation of value in use for the rigs, HWUs and drilling equipment are most sensitive to the utilisation, time chartered rates and discount rate assumptions. Typically, the utilisation and time chartered rates are affected by the levels of offshore exploration, development and production activity of, and the corresponding capital spending by, oil and gas companies, which in turn are primarily affected by the trends in and outlook of oil and natural gas prices. In addition, periodic surveys or inspections and major maintenance also affect the utilisation rates of the rigs and HWUs. Discount rates represent the current market assessment of the risks specific to each CGU, taking into consideration the time value of money and individual risks of the underlying assets that have not been incorporated in the cash flow estimates. Adjustments to the discount rate are made to factor in the specific amount and timing of the future tax flows in order to reflect a pre-tax discount rate. Any adverse change in the key assumptions used in value in use calculations would result in further impairment. The building and plant and machinery of a subsidiary in the oilfield services segment have also been impaired, based on the cash flows of the subsidiary discounted at a rate of 10.6% on a pre-tax basis.

76 UMW OIL & GAS CORPORATION BERHAD 136 ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS 5. LAND USE RIGHTS Group Cost Short term leasehold land RM 000 At 1 January ,472 Exchange differences 429 At 31 December 2015/1 January ,901 Exchange differences (66) At 31 December ,835 Accumulated amortisation At 1 January Exchange differences 35 Depreciation charge for the year 54 At 31 December 2015/1 January Exchange differences (4) Depreciation charge for the year 55 At 31 December Net carrying amount At 31 December ,514 At 31 December ,631

77 ANNUAL REPORT UMW OIL & GAS CORPORATION BERHAD 6. INTANGIBLE ASSETS Group RM 000 RM 000 Goodwill on consolidation At 1 January 11,291 Less: Impairment losses (Note 25) (11,291) At 31 December 7. INVESTMENT IN SUBSIDIARIES Company RM 000 RM 000 Unquoted shares, at cost In Malaysia 2,513,827 2,313,827 Outside Malaysia 22,902 22,902 2,536,729 2,336,729 Less: Impairment losses (Note 25) (288,029) 2,248,700 2,336,729 Details of the subsidiaries are set out in Note INVESTMENT IN ASSOCIATE Group RM 000 RM 000 Unquoted shares, at cost 1,090 1,090 Share of post-acquisition reserves 1, ,571 2,073 The Group s share of results of the associate is based on the management financial statements of the associate for the years ended 31 December 2016 and Details of the associate are disclosed in Note 34. The financial statements of the associate disclosed in Note 34 are not coterminous with that of the Group as its financial year end is 31 March. For the purpose of applying the equity method of accounting, the management accounts for the 12-month period ended 31 December 2016 and 2015 of the associate have been used.

78 UMW OIL & GAS CORPORATION BERHAD 138 ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS 8. INVESTMENT IN ASSOCIATE (CONT D) The summarised financial information of the associate, not adjusted for the proportion of ownership interest held by the Group is as follows: RM 000 RM 000 Assets and liabilities: Current assets 13,442 11,332 Non-current assets 2,757 4,457 Total assets 16,199 15,789 Current liabilities, representing total liabilities 3,580 5,657 Results Revenue 11,767 17,840 Profit for the year, representing total comprehensive income 2,094 2,605 Reconciliation of the summarised financial information presented above to the carrying amount of the Group s interest in associate is as follows: RM 000 RM 000 Net assets at 1 January 10,132 9,515 Profit for the year 2,094 2,605 Dividend paid (1,603) (3,346) Other comprehensive income 1,996 1,358 Net assets at 31 December 12,619 10,132 Share of net assets 2,524 2,026 Goodwill Carrying value of the Group s interest in associate 2,571 2,073

79 ANNUAL REPORT UMW OIL & GAS CORPORATION BERHAD 9. DEFERRED TAXATION Group RM 000 RM 000 At 1 January 894 2,822 Recognised in profit or loss (Note 29) (1,003) (1,826) Exchange differences (3) (102) At 31 December (112) 894 Presented after appropriate offsetting as follows: Deferred tax assets (112) (204) Deferred tax liabilities 1,098 (112) 894 The components and movements of deferred tax liabilities and assets during the financial year are as follows: Deferred tax liabilities: Accelerated capital allowances Others Total RM 000 RM 000 RM 000 At 1 January , ,237 Recognised in profit or loss (5,300) (251) (5,551) Exchange differences At 31 December At 1 January , ,094 Recognised in profit or loss (2,940) (11) (2,951) Exchange differences At 31 December , ,237

80 UMW OIL & GAS CORPORATION BERHAD 140 ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS 9. DEFERRED TAXATION (CONT D.) Deferred tax assets: Unabsorbed Unabsorbed capital reinvestment Unutilised allowances allowances tax losses Others Total RM 000 RM 000 RM 000 RM 000 RM 000 At 1 January 2016 (3,629) (55) (1,166) (493) (5,343) Recognised in profit or loss 2, , ,548 Exchange differences (6) (12) (18) At 31 December 2016 (701) (3) (109) (813) At 1 January 2015 (4,656) (52) (1,564) (6,272) Recognised in profit or loss 1,022 (3) (1,166) 1,272 1,125 Exchange differences 5 (201) (196) At 31 December 2015 (3,629) (55) (1,166) (493) (5,343) Deferred tax assets have not been recognised in respect of the following items: Group Company RM 000 RM 000 RM 000 RM 000 Unutilised tax losses 178,926 75,880 43,358 44,069 Unabsorbed capital and reinvestment allowances 25,034 18,844 3,140 2,306 Others 27,756 10, , ,342 47,108 46,375 The unutilised tax losses, unabsorbed capital and reinvestment allowances of the Group are available indefinitely for offsetting against future taxable profits of the respective entities within the Group. Deferred tax assets have not been recognised in respect of these items as it is not probable that future taxable profits of the applicable Group entities will be sufficient to allow the benefits to be realised.

81 ANNUAL REPORT UMW OIL & GAS CORPORATION BERHAD 10. DERIVATIVES Group Notional Fair value amount Asset Liability RM 000 RM 000 RM 000 Hedging derivatives: Interest rate swaps Current At 31 December , At 31 December , Non-current At 31 December ,788 5,071 At 31 December ,211 2,636 Interest rate swaps Interest rate swaps are used to manage exposure to interest rate movements on bank borrowings, by swapping a proportion of those borrowings from floating rates to fixed rates. Hedge accounting is applied for the interest rate swaps, the fair value movement on the hedging instrument is recognised directly in other comprehensive income into cash flow hedge reserve. The method and assumptions applied in determining the fair values of derivatives are disclosed in Note INVENTORIES Group RM 000 RM 000 At cost: Raw materials, spare parts and consumables 211, ,508 The cost of inventories recognised as an expense during the year amounted to RM54,343,000 (2015: RM79,593,000).

82 UMW OIL & GAS CORPORATION BERHAD 142 ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS 12. OTHER INVESTMENTS Investment at fair value through profit or loss Group RM 000 RM 000 Investment in money market fund, at fair value 89,565 Investment at fair value through profit or loss Company RM 000 RM 000 Investment in money market fund, at fair value 75, RECEIVABLES Group RM 000 RM 000 Trade receivables (Note (a)) 116, ,389 Other receivables (Note (b)) 15,316 17,942 Total trade and other receivables 132, ,331 Total trade and other receivables 132, ,331 Less: Prepayments (Note (b)) (7,686) (10,047) Deferred expenses (Note (b)) (1,404) (167) 123, ,117 Add: Due from related companies (Note 14) 2,547 3,666 Deposits, cash and bank balances - Non-current (Note 15) 336,450 Deposits, cash and bank balances - Current (Note 15) 555, ,807 Total loans and receivables 1,017,204 1,250,590

83 ANNUAL REPORT UMW OIL & GAS CORPORATION BERHAD 13. RECEIVABLES (CONT D.) (a) Trade receivables Group RM 000 RM 000 Trade receivables (Note (i)) 79,702 97,424 Allowance for impairment (Note (ii)) (9) (9) 79,693 97,415 Accrued income 37, , , ,389 The Group s normal trade credit terms for the financial year ended 31 December 2016 range from 30 days to 60 days (2015: 30 days to 60 days). Other credit terms are assessed and approved on a case-by-case basis. Trade receivables are non-interest bearing and are recognised at their original invoiced amounts which represent their fair values on initial recognition. The Group has concentration of credit risk in the form of outstanding balances due from 5 (2015: 5) debtors representing 86% (2015: 85%) of the total net trade receivables. (i) Aged analysis of trade receivables Group RM 000 RM 000 Not past due nor impaired 17,524 26,083 Past due but not impaired: 1-60 days past due but not impaired 44,750 45, days past due but not impaired 2,550 9, days past due but not impaired 917 3,783 More than 180 days past due but not impaired 13,952 13,159 62,169 71,332 Impaired 9 9 Total trade receivables 79,702 97,424 Trade receivables that are neither past due nor impaired are creditworthy debtors with good payment records. None of the Group s trade receivables that are neither past due nor impaired have been renegotiated during the financial year.

84 UMW OIL & GAS CORPORATION BERHAD 144 ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS 13. RECEIVABLES (CONT D.) (a) Trade receivables (Cont d.) (ii) Receivables that are impaired Group RM 000 RM 000 Individually impaired Trade receivables 9 9 Less: Allowance for impairment (9) (9) Movement in allowance for impairment At 1 January/31 December 9 9 Trade receivables that are individually determined to be impaired at the reporting date relate to trade disputes. These receivables are not secured by any collateral or bank guarantee. (b) Other receivables Group RM 000 RM 000 Deposits 1,896 2,739 Prepayments 7,686 10,047 Deferred expenses 1, Sundry receivables 4,330 4,989 15,316 17,942 Prepayments mainly comprise of insurance premium and advance payments to vendors in respect of certain services. Deferred expenses relate to mobilisation expenses incurred on drilling and workover contracts that are deferred and recognised on a straight-line basis over the term of the contract.

85 ANNUAL REPORT UMW OIL & GAS CORPORATION BERHAD 13. RECEIVABLES (CONT D.) (b) Other receivables (Cont d.) Company RM 000 RM 000 Deposits Prepayments Sundry receivables Total other receivables 1,221 1,793 Total other receivables 1,221 1,793 Less: Prepayments (166) (658) Add: Due from subsidiaries - Non-current (Note 14) 1,635,124 Due from subsidiaries - Current (Note 14) 95,695 1,678,612 Due from fellow subsidiaries (Note 14) 783 1,069 Deposits, cash and bank balances (Note 15) 421, ,067 Total loans and receivables 2,154,245 2,406,883

86 UMW OIL & GAS CORPORATION BERHAD 146 ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS 14. DUE FROM/(TO) RELATED COMPANIES Non-Current: Group Company RM 000 RM 000 RM 000 RM 000 Due from subsidiaries - interest bearing at 1.40% to 4.20% (2015: Nil) per annum 1,635,124 Current: Due from subsidiaries - interest bearing at 1.40% to 4.95% (2015: 1.15% to 4.50%) per annum 128,042 1,678,612 Due from fellow subsidiaries - interest bearing at 7.1% (2015: 7.1%) per annum non-interest bearing 2,684 2, ,069 3,482 3, ,825 1,679,681 Less: Allowance for impairment losses (Note 25) (935) (32,347) 2,547 3,666 96,478 1,679,681 Total amount due from related companies 2,547 3,666 1,731,602 1,679,681 Non-Current: Due to holding company - interest bearing at 5.53% to 5.54% (2015: Nil) per annum and repayable in 2021 (308,000) (308,000) Current: Due to holding company (1,447) (1,447) Due to subsidiaries (78) (9,111) Due to fellow subsidiaries (843) (2,775) (552) (2,146) (2,290) (2,775) (2,077) (11,257) Total amount due to related companies (310,290) (2,775) (310,077) (11,257) Amounts due from subsidiaries that are not expected to be realised within twelve months after the reporting period are classified as noncurrent. The amounts due from/(to) related companies are unsecured, non-interest bearing and repayable on demand unless otherwise disclosed.

87 ANNUAL REPORT UMW OIL & GAS CORPORATION BERHAD 15. DEPOSITS, CASH AND BANK BALANCES Group Company RM 000 RM 000 RM 000 RM 000 Non-Current: Deposit with licensed bank 336,450 Current: Deposits with licensed banks 483, , , ,445 Cash and bank balances 71, , , , , , ,067 Included in deposits with licensed banks are deposits of RM221,825,000 (2015: RM Nil) which are not available for general use by the Group and the Company due to restrictions by the lender in respect of revolving credits of USD50,000,000 (RM224,300,000) (2015: RM Nil) obtained by the Group and the Company as disclosed in Note 18. These deposits are required to be maintained throughout the duration of the drawdown of the revolving credits, and approval from the licensed bank is required for any withdrawal request. The deposits have been excluded from the cash and cash equivalent balance in the statements of cash flows. Non-current deposit with licensed bank relates to an amount of USD75,000,000 (RM336,450,000) (2015:RM Nil) in respect of secured term loan of USD165,000,000 (RM740,190,000) (2015:RM Nil) with maturity of 5 years obtained by the Group as disclosed in Note 16 which is to be placed with the lender until the loan is repaid. The deposit has been excluded from the cash and cash equivalent balance in the consolidated statement of cash flows. Included in current deposits with licensed bank in the prior year are deposits of RM578,517,000 which are not available for general use by the Group and the Company due to restrictions by the lenders in respect of Murabahah term financing of RM575,502,000 obtained by the Group and the Company as disclosed in Note 18. Also included in current deposits with licensed bank are deposits of RM61,000,000 (2015: RM Nil) of the Group and Company for the purpose of meeting the next quarterly repayment of unsecured term loan as disclosed in Note 16 and Note 18. The range of interest rates per annum of deposits as at the reporting date was as follows: Group Company % % % % Deposits with licensed banks

88 UMW OIL & GAS CORPORATION BERHAD 148 ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS 15. DEPOSITS, CASH AND BANK BALANCES (CONT D.) The range of maturities of deposits as at the reporting date was as follows: Group Company Days Days Days Days Deposits with licensed banks LONG TERM BORROWINGS Group RM 000 RM 000 Secured (Floating rate) Term loan 740,190 Less : Unamortised transaction costs (18,831) 721,359 Unsecured (Floating rate) Term loan 1,823,542 1,995,686 Less: Amount payable within one year (Note 18) (272,128) (248,721) 1,551,414 1,746,965 Total long term borrowings 2,272,773 1,746,965 The secured term loan is fully repayable on 4 June 2021, and is secured by a charge over all existing and future assets of UMW Drilling 4 (L) Ltd., UMW Drilling 5 (L) Ltd. and UMW Drilling 7 (L) Ltd., and a charge over the Debt Service Reserve Account of the Group, where an amount of USD75,000,000 (RM336,450,000) is to be placed with the licensed bank until the loan is fully repaid, as disclosed in Note 15.

89 ANNUAL REPORT UMW OIL & GAS CORPORATION BERHAD 16. LONG TERM BORROWINGS (CONT D.) The maturity of the Group s total long term and short term borrowings excluding transaction costs as at the respective reporting dates are as follows: 31 December 2016 Within More than year years years 5 years Total RM 000 RM 000 RM 000 RM 000 RM 000 (Note 18) Secured - Term loan 44, , ,190 Unsecured - Term loan 272, , , ,128 1,823,542 - Revolving credit 1,227,617 1,227,617 1,499, ,356 1,575, ,128 3,791, December 2015 Secured - Finance lease liabilities Unsecured - Term loan 248, , , ,356 1,995,686 - Revolving credit 734, ,669 - Murabahah term financing 575, ,502 - Short term financing 698, ,425 2,257, , , ,356 4,004,295 The range of weighted average effective interest rates per annum at the reporting date for secured and unsecured borrowings were as follows: Group % % Secured term loan Unsecured term loan

90 UMW OIL & GAS CORPORATION BERHAD 150 ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS 16. LONG TERM BORROWINGS (CONT D.) Company RM 000 RM 000 Unsecured (Floating rate) Term loan 733, ,660 Less: Amount payable within one year (Note 18) (57,726) (27,653) Total long term borrowings 676, ,007 The maturity of the Company s total long term and short term borrowings as at the respective reporting dates are as follows: 31 December 2016 Within More than year years years 5 years Total RM 000 RM 000 RM 000 RM 000 RM 000 (Note 18) Unsecured - Term loan 57,726 57, , , ,758 - Revolving credit 977, ,948 1,035,674 57, , ,128 1,711, December 2015 Secured - Finance lease liabilities Unsecured - Term loan 27,653 55, , , ,660 - Revolving credit 651, ,577 - Murabahah term financing 575, ,502 - Short term financing 182, ,665 1,437,410 55, , ,780 2,140,417 The range of weighted average effective interest rates per annum at the reporting date for secured and unsecured borrowings are disclosed in Note 17 and 18, respectively.

91 ANNUAL REPORT UMW OIL & GAS CORPORATION BERHAD 17. FINANCE LEASE LIABILITIES Group and Company RM 000 RM 000 Present value of minimum lease payments: Not later than 1 year 13 Present value of payments: Not later than 1 year 13 Analysed as: Due within 12 months (Note 18) 13 The interest rate as at 31 December 2016 for the finance lease liabilities was Nil (2015: 13.42% to 14.32% per annum). 18. SHORT TERM BORROWINGS Group RM 000 RM 000 Secured (Fixed rate) Finance lease liabilities (Note 17) 13 Unsecured (Floating rate) Revolving credits 1,227, ,669 Murabahah term financing 575,502 Short term financing 698,425 Term loans payable within one year (Note 16) 272, ,721 1,499,745 2,257,317 Total short term borrowings 1,499,745 2,257,330

92 UMW OIL & GAS CORPORATION BERHAD 152 ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS 18. SHORT TERM BORROWINGS (CONT D.) The range of weighted average effective interest rates per annum at the reporting date for borrowings were as follows: Group % % Revolving credits Murabahah term financing Short term financing Term loans payable within one year Company RM 000 RM 000 Secured - Fixed rate Finance lease liabilities (Note 17) 13 Unsecured - Floating rate Revolving credits 977, ,577 Murabahah term financing 575,502 Short term financing 182,665 Term loans payable within one year (Note 16) 57,726 27,653 1,035,674 1,437,397 Total short term borrowings 1,035,674 1,437,410 The range of weighted average effective interest rates per annum at the reporting date for borrowings were as follows: Company % % Revolving credits Murabahah term financing Short term financing Term loan payable within one year (Note 16)

93 ANNUAL REPORT UMW OIL & GAS CORPORATION BERHAD 19. PAYABLES Group RM 000 RM 000 Trade payables: Trade payables 78,279 90,344 Accruals 69, , , ,596 Other payables: Accruals 30,191 29,073 Provision for unutilised leave Deferred income 1, Deposits received Sundry payables 24,748 27,223 57,710 57,639 Total trade and other payables 205, ,235 Total trade and other payables 205, ,235 Less: Deferred income (1,994) (395) Provision for unutilised leave (640) (899) Add: Due to holding company - Non-current (Note 14) 308,000 Due to holding company - Current (Note 14) 1,447 Due to fellow subsidiaries (Note 14) 843 2,775 Long term borrowings (Note 16) 2,272,773 1,746,965 Short term borrowings (Note 18) 1,499,745 2,257,330 Total financial liabilities carried at amortised costs 4,285,571 4,300,011 Trade payables are non-interest bearing and are normally settled within 30 days to 60 days (2015: 30 days to 60 days) terms. Included in other payables are sundry payables which are non-interest bearing and are normally settled within 30 days to 90 days (2015: 30 days to 90 days) terms. Deferred income relates to mobilisation fees received on drilling and workover contracts that are deferred and recognised on a straightline basis over the term of the respective contracts.

94 UMW OIL & GAS CORPORATION BERHAD 154 ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS 19. PAYABLES (CONT D.) Company RM 000 RM 000 Other payables: Accruals 7,815 7,138 Provision for unutilised leave Sundry payables 1, Total other payables 9,273 8,302 Total other payables 9,273 8,302 Less: Provision for unutilised leave (413) (483) Add: Due to holding company - Non-current (Note 14) 308,000 Due to holding company - Current (Note 14) 1,447 Due to subsidiaries (Note 14) 78 9,111 Due to fellow subsidiaries (Note 14) 552 2,146 Long term borrowings (Note 16) 676, ,007 Short term borrowings (Note 18) 1,035,674 1,437,410 Total financial liabilities carried at amortised costs 2,030,643 2,159, SHARE CAPITAL AND SHARE PREMIUM Group and Company Number of ordinary shares Amount 000 RM 000 (a) Authorised: 1 January 2015/31 December 2015/ 1 January 2016/31 December 2016 (@ RM0.50 each) 5,000,000 2,500,000

95 ANNUAL REPORT UMW OIL & GAS CORPORATION BERHAD 20. SHARE CAPITAL AND SHARE PREMIUM (CONT D.) (b) Issued and paid up: Group and Company Total Number of share capital ordinary shares Share Share and share of RM0.50 each capital premium premium 000 RM 000 RM 000 RM 000 At 1 January 2015/31 December 2015/ 1 January 2016/31 December ,162,000 1,081,000 1,372,819 2,453, OTHER RESERVES (a) Share options reserve Share options reserve represents the equity-settled share options granted by the ultimate holding company to the employees of the Group. (b) Capital reserve Capital reserve relates to statutory reserves of an overseas subsidiary. (c) Gain on derecognition of intercompany financial liabilities The gain on derecognition of financial liabilities arose as part of the settlement of intercompany liabilities due to the holding company pursuant to a past internal reorganisation. (d) Foreign currency translation reserve The foreign currency translation reserve represents exchange differences arising from the translation of the financial statements of foreign operations whose functional currencies are different from the Group s presentation currency. (e) Hedging reserve Hedging reserve represents the cumulative effective portion of gains or losses arising on changes in fair value of hedging instruments entered into for cash flows hedges. The cumulative gain or loss arising on changes in fair value of the hedging instruments that are recognised and accumulated under the heading of cash flow hedge reserve will be reclassified to income statement only when the hedge transaction affects the profit or loss, or included as a basis adjustment to the non-financial hedged item.

96 UMW OIL & GAS CORPORATION BERHAD 156 ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS 22. REVENUE Group Company RM 000 RM 000 RM 000 RM 000 Drilling and workover services 266, ,720 Sale of goods 5,113 22,185 Rendering of services 49,281 61,078 Gross dividend income from subsidiaries 6,592 Management fees from subsidiaries 10,218 13,110 Management fees from fellow subsidiaries Others , ,877 16,897 13, OTHER OPERATING INCOME Included in other operating income are: Group Company RM 000 RM 000 RM 000 RM 000 Net foreign exchange gains 26,038 31,190 30,839 57,451 Net fair value gain on derivatives 604 Net fair value gain on money market fund Gain on disposal of property, plant and equipment Rental income 1, ,260

97 ANNUAL REPORT UMW OIL & GAS CORPORATION BERHAD 24. EMPLOYEE BENEFITS Group Company RM 000 RM 000 RM 000 RM 000 Wages and salaries 89, ,591 12,207 14,232 Social security costs (Reversal of)/provision for unutilised leave (92) 108 (70) 11 Pension costs - defined contribution plan 6,471 8,418 1,878 2,258 Termination benefits 3, Other employee related expenses 23,276 32,303 1,220 1, , ,898 15,881 18,368 Less: Employee benefits capitalised - Property, plant and equipment (Note 4(b)(ii)) (10,337) 123, ,561 15,881 18,368 Included in employee benefits is executive director s remuneration as follows: Group Company RM 000 RM 000 RM 000 RM 000 Salaries and other emoluments 1,161 1,283 1,161 1,274 Pension costs - defined contribution plan Benefits-in-kind IMPAIRMENT PROVISIONS Group Company RM 000 RM 000 RM 000 RM 000 Property, plant and equipment (Note 4) 780, ,431 Goodwill (Note 6) 11,291 Investment in a subsidiary (Note 7) 288,029 Amount due from subsidiaries (Note 14) 32,347 Amount due from fellow subsidiaries (Note 14) , , ,376

98 UMW OIL & GAS CORPORATION BERHAD 158 ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS 26. OTHER OPERATING EXPENSES Included in other operating expenses are: Group Company RM 000 RM 000 RM 000 RM 000 Non-executive directors remuneration: - fees meeting allowances other emoluments Rental of premises 9,149 10,773 3,279 3,380 Rental of equipment, barge and rig 16,446 49, Repair and maintenance of equipment and rigs 44,453 56, Auditors remuneration: Statutory audit - auditors of the Company other auditors Other services - auditors of the Company Management fees payable to a related company 1,099 1,104 1,099 1,104 Net fair value loss on money market fund Loss on disposal of property, plant and equipment Property, plant and equipment written off 6,826 14,054 1 Non-executive directors remuneration: Group and Company Directors fees **Other emoluments RM 000 RM 000 RM 000 RM 000 Tan Sri Asmat bin Kamaludin Badrul Feisal Bin Abdul Rahim Dr. Leong Chik Weng Razalee bin Amin Dato Afifuddin bin Abdul Kadir Cheah Tek Kuang Dato Ibrahim bin Marsidi Fina Norhizah binti Hj Baharu Zaman ** Included in the other emoluments are meeting fees allowance, per diem allowance, car, petrol, telephone expenses and leave passage.

99 ANNUAL REPORT UMW OIL & GAS CORPORATION BERHAD 26. OTHER OPERATING EXPENSES (CONT D.) The number of directors of the Company whose total remuneration falls within the respective bands are as follows: Group Company Executive director: RM1,500,001 - RM1,550, RM1,600,001 - RM1,650, Non-executive directors: RM100,001 - RM150, RM250,001 - RM300, RM300,001 - RM350, FINANCE COSTS Group Company RM 000 RM 000 RM 000 RM 000 Interest expenses - Bank borrowings 107,764 71,210 47,940 28,031 - Due to holding company 9,917 9,917 - Others ,233 71,942 57,857 28,034 Less: Interest expenses capitalised - Property, plant and equipment (Note 4(b)(i)) (7,883) Net interest expenses 118,233 64,059 57,857 28, INVESTMENT INCOME Group Company RM 000 RM 000 RM 000 RM 000 Distribution income from: Money market fund 1, Interest income from: Deposits with licensed banks 15,665 24,528 13,354 23,234 Subsidiaries 55,205 39,044 16,899 25,466 69,297 62,999

100 UMW OIL & GAS CORPORATION BERHAD 160 ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS 29. INCOME TAX EXPENSE Group Company RM 000 RM 000 RM 000 RM 000 Income tax: Malaysian income taxes 1,702 4,300 1,551 3,291 Foreign income taxes ,881 2,264 24,181 1,551 3,291 Under/(over) provision in prior years: Malaysian income taxes 927 (2,206) 137 (113) Foreign income taxes (5) (144) 922 (2,350) 137 (113) 3,186 21,831 1,688 3,178 Deferred taxation (Note 9): Relating to origination and reversal of temporary differences (1,026) (1,976) Under provision in prior years (1,003) (1,826) Total income tax expense 2,183 20,005 1,688 3,178 Domestic income tax is calculated at the Malaysian statutory tax rate of 24% (2015: 25%) of the estimated assessable profit for the year. Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions.

101 ANNUAL REPORT UMW OIL & GAS CORPORATION BERHAD 29. INCOME TAX EXPENSE (CONT D.) Reconciliations between tax expense and the accounting profit multiplied by the applicable corporate tax rate for the years ended 31 December 2016 and 2015 are as follows: Group Company RM 000 RM 000 RM 000 RM 000 (Loss)/profit before tax (1,181,264) (348,426) (285,774) 78,978 Taxation at Malaysian statutory rate of 24% (2015: 25%) (283,503) (87,107) (68,586) 19,744 Effect of different tax rates in other jurisdictions 471 7,183 Income not subject to tax (19,672) (10,160) (23,799) (16,724) Expenses not deductible for tax purposes 270, ,317 93, Utilisation of previously unrecognised deferred tax assets (25) (25) Deferred tax assets not recognised 33,117 10, Under provision of deferred tax in prior years Under/(over) provision of income tax in prior years 922 (2,350) 137 (113) Share of results of associate (101) (130) Tax expense for the year 2,183 20,005 1,688 3, LOSS PER SHARE Basic/diluted Group Net loss attributable to equity holders (RM 000) (1,177,379) (369,277) Weighted average number of ordinary shares of RM0.50 (2015: RM0.50) in issue ( 000) 2,162,000 2,162,000 Basic/diluted loss per share (sen): (54.46) (17.08) Basic/diluted loss per share is calculated by dividing the net loss attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the year. The Company has no potential dilutive ordinary shares as at the end of the reporting date and as such diluted earnings per share is equal to the basic earnings per share.

102 UMW OIL & GAS CORPORATION BERHAD 162 ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS 31. CAPITAL COMMITMENTS Group RM 000 RM 000 Approved and contracted for: - land and buildings equipment, plant and machinery 8,361 79,466 - others 38 2,086 8,720 82,127 Approved but not contracted for: - land and buildings 4,353 5,324 - equipment, plant and machinery 33,877 98,520 - others 6,235 3,342 44, ,186 Total capital commitments 53, , SEGMENT REPORTING For management purposes, the Group is organised into business segments based on nature of services and has operating segments as follows: (i) (ii) (iii) The drilling services segment is principally involved in the provision of drilling services and workover rig services to the upstream oil and gas sector. This segment owns and operates several drilling rigs and HWUs, and acts as an agent for two providers of specialised equipment and service. The rigs are chartered out to oil majors for their exploration, development and production activities. The HWUs service offshore wells that involve the use of HWUs and its ancillary equipment to complete the removal and replacement of well equipment to restore the operation of suspended or under-performing wells; The oilfield services segment principally provide premium Oil Country Tubular Goods ( OCTG ) threading, repair and inspection services; and The others segment is involved in investment holding, provision of support services, management and corporate services which do not generate significant external revenue. Transfer prices between operating segments are at terms agreed between the parties.

103 ANNUAL REPORT UMW OIL & GAS CORPORATION BERHAD 32. SEGMENT REPORTING (CONT D.) (a) Business segments 2016 Per Adjustments consolidated Drilling Oilfield and financial services services Others eliminations Note statements RM 000 RM 000 RM 000 RM 000 RM 000 Revenue: External customers 303,547 17, ,053 Inter-segment 10,145 (10,145) I Total revenue 303,547 17,419 10,232 (10,145) 321,053 Results: Depreciation and amortisation (284,324) (5,773) (1,094) (291,191) Impairment of property, plant equipment (764,485) (15,780) (780,265) Finance costs (118,142) (91) (118,233) Investment income 2, ,632 16,899 Share of results of associate Other material non-cash items (5,678) (57) (19,198) II (24,933) Segment (loss)/profit before tax (1,155,764) (34,131) 8,631 (1,181,264) Income tax expense (309) (172) (1,702) (2,183) Segment (loss)/profit after tax (1,156,073) (34,303) 6,929 (1,183,447) Assets: Investment in associate 2,571 2,571 Additions to non-current assets 53,189 3, III 57,036 Segment assets 6,044,537 70, ,350 6,550,040 Liabilities: Segment liabilities 3,956,063 13, ,302 4,288,839

104 UMW OIL & GAS CORPORATION BERHAD 164 ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS 32. SEGMENT REPORTING (CONT D.) (a) Business segments (Cont d.) 2015 Per Adjustments consolidated Drilling Oilfield and financial services services Others eliminations Note statements RM 000 RM 000 RM 000 RM 000 RM 000 Revenue: External customers 802,363 37, ,877 Inter-segment 13,024 (13,024) I Total revenue 802,363 37,412 13,126 (13,024) 839,877 Results: Depreciation and amortisation (239,542) (5,406) (1,171) (246,119) Impairment of Rigs, HWU and goodwill (341,504) (6,218) (347,722) Finance costs (60,864) (94) (3,101) (64,059) Investment income ,389 25,466 Share of results of associate Other material non-cash items (17,484) (14) 2,633 II (14,865) Segment (loss)/profit before tax (385,329) (5,030) 41,933 (348,426) Income tax expense (15,666) (1,076) (3,263) (20,005) Segment (loss)/profit after tax (400,995) (6,106) 38,670 (368,431) Assets: Investment in associate 2,073 2,073 Additions to non-current assets 1,769,329 10,046 1,613 III 1,780,988 Segment assets 6,710, , ,178 7,646,983 Liabilities: Segment liabilities 4,097,980 11, ,890 4,303,546

105 ANNUAL REPORT UMW OIL & GAS CORPORATION BERHAD 32. SEGMENT REPORTING (CONT D.) (a) Business segments (Cont d.) The following are the nature of adjustments and eliminations to arrive at amounts reported in the consolidated financial statements: I. Inter-segment revenue are eliminated on consolidation. II. Other material non-cash income/(expenses) consist of the following items as presented in the respective notes to the consolidated financial statements: Note RM 000 RM 000 Net fair value gain on derivatives Net loss on disposal of property, plant and equipment 23, 26 (625) (69) Net fair value (loss)/gain on money market fund 23, 26 (52) 240 Net unrealised foreign exchange loss 23 (17,430) (1,586) Property, plant and equipment written off 26 (6,826) (14,054) (24,933) (14,865) III. Additions to non-current assets consist of: Note RM 000 RM 000 Property, plant and equipment 4 57,036 1,780,988

106 UMW OIL & GAS CORPORATION BERHAD 166 ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS 32. SEGMENT REPORTING (CONT D.) (b) Geographical segments Revenue and non-current assets information based on the geographical location of customers and assets respectively are as follows: Malaysia Indonesia Singapore Vietnam Myanmar Others Total RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM December 2016 Revenue from external customers 313,786 7, ,053 Non-current assets 4,669, ,980 13,837 30,513 5,300, December 2015 Revenue from external customers 419, ,254 68,785 19, ,877 Non-current assets 3,781,263 2,240,337 24,768 37,897 6,084,265 Non-current assets information presented above consist of the following items as presented in the consolidated statements of financial position: RM 000 RM 000 Property, plant and equipment 5,298,125 6,081,634 Land use rights 2,514 2,631 5,300,639 6,084,265

107 ANNUAL REPORT UMW OIL & GAS CORPORATION BERHAD 33. SUBSIDIARIES Name of company Country of incorporation Principal activities Proportion of ownership interest % % Subsidiaries of the Company: UMW JDC Drilling Sdn. Bhd. Malaysia Provision of drilling operations for the oil and gas industry UMW Malaysian Ventures Sdn. Bhd. Malaysia Investment holding UMW Singapore Ventures Pte. Ltd.* Singapore Investment holding UMW Rig Asset (L) Ltd. Malaysia Investment holding Subsidiaries of: UMW Malaysian Ventures Sdn. Bhd. UMW Singapore Ventures Pte. Ltd. UMW Rig Asset (L) Ltd. UMW Workover Sdn. Bhd. Malaysia Provision of workover operations for the oil and gas industry. UMW Offshore Drilling Sdn. Bhd. Malaysia Contract offshore drilling business and operations and other engineering services for oil and gas exploration, development and production in Malaysia and overseas UMW Drilling Co. Ltd. Malaysia Ownership and leasing of rig UMW Drilling 2 (L) Ltd. Malaysia Ownership and leasing of rig UMW Drilling 3 (L) Ltd. Malaysia Ownership and leasing of rig UMW Drilling 4 (L) Ltd. Malaysia Ownership and leasing of rig UMW Drilling 5 (L) Ltd. Malaysia Ownership and leasing of rig UMW Drilling 6 (L) Ltd. Malaysia Ownership and leasing of rig UMW Drilling 7 (L) Ltd. Malaysia Ownership and leasing of rig UMW Drilling 8 (L) Ltd. Malaysia Ownership and leasing of rig

108 UMW OIL & GAS CORPORATION BERHAD 168 ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS 33. SUBSIDIARIES (CONT D.) Name of company Country of incorporation Principal activities Proportion of ownership interest % % UMW Drilling Academy Sdn. Bhd. Malaysia Provision of training and courses in relation to oil and gas drilling activities UMW Standard 1 Pte. Ltd. Singapore Ownership and leasing of rig UMW Standard 3 Pte. Ltd. Singapore Dormant UMW Offshore Drilling Ltd. Cayman Islands Contract drilling operations and other engineering services for oil and gas exploration, development and production Offshore Driller B324 Ltd. Cayman Islands Dormant Offshore Driller 4 Ltd. Cayman Islands Dormant UMW Oilpipe Services Sdn. Bhd. Malaysia Provision of threading, inspection, repair and maintenance services for OCTG. UMW Oilpipe Services (Turkmenistan) Ltd. Malaysia Provision of threading, inspection, repair and maintenance services for OCTG UMW Oilfield Services (Tianjin) Co., Limited* People s Republic of China Provision of threading, inspection, repair and maintenance services for OCTG UOT (Thailand) Limited Thailand Provision of threading, inspection, repair and maintenance services for OCTG * Audited by firms other than Ernst & Young.

109 ANNUAL REPORT UMW OIL & GAS CORPORATION BERHAD 33. SUBSIDIARIES (CONT D.) (a) Subsidiaries with non-controlling interests Details and summarised financial information of subsidiaries which have non-controlling interests that are material to the Group are set out below. The summarised financial information presented below is the amount before inter-company elimination. (i) Details of subsidiaries Proportion of ownership interest held by non-controlling interests Name of company % % UMW JDC Drilling Sdn. Bhd UMW Oilpipe Services (Turkmenistan) Ltd UOT (Thailand) Limited (ii) Summarised statements of financial position RM 000 RM 000 Non-current assets 3,104 11,687 Current assets 22,222 44,540 Non-current liabilities (277) Current liabilities (11,748) (18,273) (iii) Summarised statements of comprehensive income RM 000 RM 000 Revenue 63, ,442 (Loss)/profit for the year (15,834) 2,899 Other comprehensive income 534 5,124 Total comprehensive (loss)/income (15,300) 8,023 Dividends paid to non-controlling interests (1,648)

110 UMW OIL & GAS CORPORATION BERHAD 170 ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS 33. SUBSIDIARIES (CONT D.) (a) Subsidiaries with non-controlling interests (Cont d.) (iv) Summarised statements of cash flows RM 000 RM 000 Net cash (used in)/generated from operating activities (9,302) 24,646 Net cash generated from/(used in) investing activities 121 (170) Net cash used in financing activities (9,396) Net (decrease)/increase in cash and cash equivalents (18,577) 24,477 Cash and cash equivalents at end of year 18,712 36, ASSOCIATE Name of company Country of incorporation Principal activities Proportion of ownership interest % % Oil-Tex (Thailand) Company Limited* Thailand Provision of logistic services for the oil and gas industry * Audited by firm other than Ernst & Young. Financial year end of Oil-Tex (Thailand) Company Limited is 31 March.

111 ANNUAL REPORT UMW OIL & GAS CORPORATION BERHAD 35. SIGNIFICANT RELATED PARTY DISCLOSURES (a) In addition to the related party transaction information disclosed elsewhere, transactions by the Group with its related parties are as follows: Companies Transacting Parties Nature of Transactions RM 000 RM 000 UMW Offshore Drilling Sdn. Bhd. UMW Oil & Gas Corporation Berhad and its subsidiaries companies UMW Pennzoil Distributors Sdn. Bhd., a subsidiary of UMWH U-TravelWide Sdn. Bhd., a subsidiary of UMWH Purchase of goods 188 Purchase of services UMW Oil & Gas Corporation Berhad UMW Corporation Sdn. Bhd., a subsidiary of UMWH Rental expense Management fees expense 2,595 1,099 2,545 1,104 UMW Oilpipe Services Sdn. Bhd. UMW Industries (1985) Sdn. Bhd., a subsidiary of UMWH Operating lease expense UMW Oil & Gas Corporation Berhad e-lock Corporation Sdn. Bhd., an associate of UMWH in which Dr. Leong Chik Weng also has an interest Purchase of services UMW Oil & Gas Corporation Berhad UMWH, holding company Interest expense on advances from UMWH 9,917 UMW Oil & Gas Corporation Berhad and its subsidiaries companies Toyota Capital Malaysia Sdn. Bhd., a related party of the Group Operating lease expense 1,356 1,389 UMW JDC Drilling Sdn. Bhd. ( UJD ) Japan Drilling Co. Ltd., a corporate shareholder of UJD, and its subsidiaries Purchase of goods and services Bareboat charter expense 16,359 2,308 19,366 10,518 The above transactions were stated at contracted amount and were entered into in the normal course of business on a commercial basis.

112 UMW OIL & GAS CORPORATION BERHAD 172 ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS 35. SIGNIFICANT RELATED PARTY DISCLOSURES (CONT D.) (b) In addition to the related party transaction information disclosed elsewhere, transactions by the Company with its subsidiaries are as follows: RM 000 RM 000 Dividend income (6,592) Management fees income (10,305) (13,212) Interest income (55,205) (39,044) Rental income (951) (1,260) Services rendered income (2,923) (2,458) (c) Compensation of key management personnel The aggregate compensation of key management personnel, including the executive director of the Company is as follows: RM 000 RM 000 Salaries and wages 5,514 6,624 Social security cost Pension costs - defined contribution plan Other staff related costs ,931 8,331

113 ANNUAL REPORT UMW OIL & GAS CORPORATION BERHAD 36. FAIR VALUE OF FINANCIAL INSTRUMENTS Determination of Fair Values Financial instruments that are not carried at fair value and whose carrying amounts are reasonable approximations of fair value The following are classes of financial instruments that are not carried at fair value and whose carrying amounts are reasonable approximations of fair value: Receivables - Trade and other receivables 13 - Due from related companies 14 Borrowings - Fixed rate borrowings (current) 18 - Floating rate borrowings (non-current) 16 - Floating rate borrowings (current) 18 Payables - Trade and other payables 19 - Due to related companies 14 Note The carrying amounts of these financial assets and liabilities are reasonable approximation of fair value, either due to their short-term nature or that they are floating rate instruments that are re-priced to market interest rates on or near the reporting date. The carrying amounts of the current portion of loans and borrowings are reasonable approximation of fair value due to the insignificant impact of discounting. The fair values of current loans and borrowings are estimated by discounting expected future cash flows at market incremental lending rate for similar types of lending, borrowing or leasing arrangements at the reporting date. Held for trading investments The fair value of these financial instruments are determined by reference to their published net asset values as at the reporting date. Finance lease liabilities The fair value of these financial instruments are estimated by discounting expected future cash flows at market incremental lending rate for similar types of lending, borrowing or leasing arrangements at the reporting date. Derivatives Interest rate swap contracts are valued using a valuation technique with market observable inputs. The most frequently applied valuation techniques include swap models, using present value calculations. The models incorporate various inputs including the credit quality of counterparties and interest rate curves.

114 UMW OIL & GAS CORPORATION BERHAD 174 ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS 36. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONT D.) Fair value hierarchy The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows: (a) Level 1 Quoted prices (unadjusted) in active markets for identical assets or liabilities. (b) Level 2 Input other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). (c) Level 3 Input for the asset or liability that are not based on observable market data (unobservable input). Assets Level 1 Level RM 000 RM 000 RM 000 RM 000 Financial assets at fair value through profit or loss: - Derivative assets 5,560 2,868 Held for trading investments - Investments in money market fund 89,565 The Group does not have any financial instruments classified as Level 3 as at the reporting date. There were no material transfers between Level 1, Level 2 and Level 3 during the financial year. 37. CAPITAL MANAGEMENT Capital management is defined as the process of managing the composition of the Group s debts and equity to achieve and maintain an optimal capital structure and ensuring availability of funds to support its business and maximise its shareholder value. The Group defines capital as total equity and net debt of the Group and manages its capital structure using a gearing ratio which is net debt divided by total equity plus net debt. For this purpose, borrowings from holding company and other investments, which consist of investments in money market fund, are included in deriving net debt of the Group and of the Company. The Group endeavours to maintain a healthy gearing ratio to enjoy reasonable costs of borrowings and sufficient debt headroom for future asset expansion.

115 ANNUAL REPORT UMW OIL & GAS CORPORATION BERHAD 37. CAPITAL MANAGEMENT (CONT D.) Group Company RM 000 RM 000 RM 000 RM 000 Loans and borrowings 3,772,518 4,004,295 1,711,706 2,140,417 Due to holding company 309, ,447 Less: Deposits, cash and bank balances - Current (555,021) (973,807) (421,588) (726,067) Deposit, cash and bank balances - Non-current (336,450) Other investments (89,565) (75,642) Net debt 3,190,494 2,940,923 1,599,565 1,338,708 Total equity 2,261,201 3,343,437 2,374,798 2,662,260 Total capital 5,451,695 6,284,360 3,974,363 4,000,968 Gearing ratio FINANCIAL RISK MANAGEMENT The Group s activities expose it to a variety of financial risks. The financial risk management practices of the Group seek to ensure that adequate financial resources are available for the development of the Group s business while managing credit, liquidity, interest rate and foreign currency risks. The principal aim of the Group s financial risk management practices is to identify, evaluate and manage financial risks with an objective to minimise potential adverse effects on the financial performance of the Group. The Group s financial risk management practices are in line with the Enterprise Risk Management Framework of its holding company, UMW Holdings Berhad, with modifications made to suit the industry the Group is in. The Group s risk governance structure comprise the following: (i) (ii) a Board Risk Management Committee of the Board of Directors; and a Risk Management Committee at corporate management level. Responsibilities of the Board Risk Management Committee include: (i) (ii) (iii) (iv) to monitor the consistent enforcement of Enterprise Risk Management ( ERM ) policy across the Group; to review and endorse the risk parameters, risk appetite, risk profiles, risk treatment options, risk action plans and key risk indicators; to provide guidance and advice on appropriateness of risk treatment option selected and risk action plans development; and to provide half yearly reports to the Board on ERM. The Risk Management Committee is made up of members of the Group s senior management. This committee will be responsible to identify and assess risks and make recommendations on risk management to the Board Risk Management Committee of the Board of Directors.

116 UMW OIL & GAS CORPORATION BERHAD 176 ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS 38. FINANCIAL RISK MANAGEMENT (CONT D.) Financial risk management objectives of the Group are as follows: (i) (ii) (iii) to minimise exposure to all financial risks including interest, credit, liquidity and foreign currency exchange risks; to accept certain level of financial risks including price risk and credit risk that commensurate with the expected returns on the underlying operations and activities; and to minimise liquidity risk by proper cash flow planning, management and control. The Group s financial risk management strategies include using: (i) (ii) (iii) derivatives to hedge its exposure to currency, interest and cash flow risks where appropriate. However, use of derivatives for speculation is specifically prohibited; credit controls that include evaluation, acceptance, monitoring and feedback to ensure that only reasonably creditworthy customers are accepted; and money market instruments, short term deposits and bank borrowings to manage liquidity risks. The Group s strategies and practices in dealing with its major financial risks are set out below: (a) Foreign Currency Risk Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The functional currency of a majority of the companies within the Group is United States Dollar ( USD ). The Group relies primarily on the natural hedge between its USD-denominated revenue and USD-denominated borrowings and other liabilities to minimise its exposures to foreign currency risk. The Group s exposures to foreign currency risk primarily consist of trade receivables, trade payables, loans and borrowings, and deposits, cash and bank balances, as a result of transactions entered into in currencies other than the functional currencies. As at 31 December 2016, approximately 45% (2015: 21%) of the Group s trade receivables and approximately 54% (2015: 28%) of the Group s trade payables are denominated in currencies other than the functional currency of the relevant companies in the Group. The Group also holds deposits, cash and bank balances denominated in currencies other than functional currencies for working capital purposes. As at 31 December 2016, the Group has such balances amounting to RM37,709,000 (2015: RM331,976,000). Material foreign currency exposures are hedged via forward exchange contracts by using foreign exchange facilities maintained with leading banks. The forward exchange contracts must be in the same currency as the hedged item. It is the Group s policy not to enter into forward contracts until a firm commitment is in place.

117 ANNUAL REPORT UMW OIL & GAS CORPORATION BERHAD 38. FINANCIAL RISK MANAGEMENT (CONT D.) (a) Foreign Currency Risk (Cont d.) The table below demonstrates the sensitivity of the Group s and Company s profit after taxation as at year end to a reasonable possible change in the US Dollar exchange rates against RM with all other variables held constant: Group Company Effect on loss Effect on Effect on after loss after profit after taxation taxation taxation Increase/(decrease) Increase/(decrease) RM 000 RM 000 RM 000 RM 000 US Dollar/RM - strengthened 5% (2015: 5%) (381) (16,290) (2,188) (13,764) - weakened 5% (2015: 5%) ,290 2,188 13,764 (b) Interest Rate Risk Interest rate risk is the risk that the fair value or future cash flows of the Group s and the Company s financial instruments will fluctuate because of changes in market interest rates. The Group is exposed to interest rate risk in respect of its placements with financial institutions and bank borrowings at floating rates. Its policy is to: (i) (ii) have an optimal mixture of short term deposits or placements; and manage its interest cost using a combination of fixed and floating rate debts. The Group monitors interest rates prior to making deposits and bank borrowings to ensure that the applicable rates are established at acceptable levels. Interest rate swaps may be used to hedge against fluctuation in interest rate where appropriate.

118 UMW OIL & GAS CORPORATION BERHAD 178 ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS 38. FINANCIAL RISK MANAGEMENT (CONT D.) (b) Interest Rate Risk (Cont d.) Sensitivity analysis for interest rate risk The table below demonstrates the sensitivity of the Group s and the Company s profit after taxation, to possible reasonable changes in interest rates with all other variables held constant, through impact on interest income from placement of surplus funds and interest expense on floating rate borrowings. Group Company Effect on loss Effect on Effect on after loss after profit after taxation taxation taxation Increase/(decrease) Increase/(decrease) Basis points RM 000 RM 000 RM 000 RM 000 London Interbank Offered Rate ,355 7,371 4,241 (4,782) 50 (9,355) (7,371) (4,241) 4,782 Cost of funds of lenders ,297 9,205 4,318 (5,920) 50 (6,297) (9,205) (4,318) 5,920 (c) Credit Risk Credit risk is the risk of loss that may arise on outstanding financial instruments should a counterparty default on its obligations. The Group s exposure to credit risk arises primarily from trade and other receivables. For other financial assets (including investment securities, deposits, cash and bank balances and derivatives), the Group and the Company minimise credit risk by dealing exclusively with high credit rating counterparties. At the reporting date, the Group s maximum exposure to credit risk is represented by the carrying amount of each class of financial assets recognised in the statements of financial position, including derivatives with positive fair values. Credit risk of the Group is managed during the tendering stage where the credit worthiness of a potential customer or the payment records of an existing customer is evaluated prior to participating in a tender. The Group s customers are mainly local and overseas national oil companies, subsidiaries of credit-worthy international oil and gas companies or established international companies. For less established companies, credit risk is managed by obtaining advance payment and/or a collateral in the form of a bank guarantee.

119 ANNUAL REPORT UMW OIL & GAS CORPORATION BERHAD 38. FINANCIAL RISK MANAGEMENT (CONT D.) (d) Liquidity Risk Liquidity risk is the risk that the Group and the Company is unable to meet financial obligations when due, as a result of shortage of funds including arising from mismatch of maturities of financial assets and liabilities. To ensure a healthy liquidity position, it is the Group s and the Company s policy to: (i) (ii) (iii) (iv) have the right mixture of liquid assets in its portfolio; maintain a healthy gearing ratio; finance long term assets with long term loans; and maintain a balance between flexible and structured financing options to finance its operations and investments. As at 31 December 2016, the Group has an excess of current liabilities over its current assets by RM802,869,000 (2015: RM997,678,000). As disclosed in Note 39, the Group is undertaking a Proposed Renounceable Rights Issue, out of which RM750,000,000 is intended for repayment of borrowings. In the meantime, the Group has sufficient unutilised credit facilities to meet its liabilities as they fall due. The table below summarises the maturity profile of the Group s and the Company s liabilities at the reporting date based on contractual undiscounted repayment obligations. Group l December l More than More than one year two years On demand and less and less Over or within than two than five five one year years years years Total RM 000 RM 000 RM 000 RM 000 RM 000 Financial liabilities: Trade and other payables (exclude provisions and deferred income) 202, ,763 Due to holding company 1, , ,866 Due to fellow subsidiaries Borrowings 1,588, ,867 1,727, ,552 4,128,401 Total undiscounted financial liabilities 1,793, ,867 2,111, ,552 4,716,873

120 UMW OIL & GAS CORPORATION BERHAD 180 ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS 38. FINANCIAL RISK MANAGEMENT (CONT D.) (d) Liquidity Risk (Cont d.) Group l December l More than More than one year two years On demand and less and less Over or within than two than five five one year years years years Total RM 000 RM 000 RM 000 RM 000 RM 000 Financial liabilities: Trade and other payables (exclude provisions and deferred income) 292, ,941 Due to fellow subsidiaries 2,775 2,775 Borrowings 2,311, ,619 1,066, ,701 4,272,513 Total undiscounted financial liabilities 2,606, ,619 1,066, ,701 4,568,229 Company l December l More than More than one year two years On demand and less and less Over or within than two than five five one year years years years Total RM 000 RM 000 RM 000 RM 000 RM 000 Financial liabilities: Other payables (exclude provisions) 8,860 8,860 Due to holding company 1, , ,866 Due to subsidiaries and fellow subsidiaries Borrowings 1,059,813 79, , ,552 1,842,987 Total undiscounted financial liabilities 1,070,750 79, , ,552 2,237,343

121 ANNUAL REPORT UMW OIL & GAS CORPORATION BERHAD 38. FINANCIAL RISK MANAGEMENT (CONT D.) (d) Liquidity Risk (Cont d.) Company l December l More than More than one year two years On demand and less and less Over or within than two than five five one year years years years Total RM 000 RM 000 RM 000 RM 000 RM 000 Financial liabilities: Other payables (exclude provisions) 7,819 7,819 Due to subsidiaries and fellow subsidiaries 11,257 11,257 Borrowings 1,453,153 76, , ,816 2,278,075 Total undiscounted financial liabilities 1,472,229 76, , ,816 2,297,151 There have been no material changes to the Group s and the Company s exposure to the above financial risks or the manner in which it manages and measures the risks for the financial years ended 31 December 2016 and 31 December SUBSEQUENT EVENTS On 19 January 2017, the Group ( UMW-OG ) announced the following corporate proposals: i. Proposed acquisition of 497,768,820 ordinary shares of RM0.50 each in Icon Offshore Berhad ( Icon ) ( Icon Shares ), representing approximately 42.3% equity interest in Icon, for a purchase consideration of RM248,884,410 or RM0.50 per Icon share to be satisfied via the issuance of 311,105,513 new ordinary shares of RM0.50 each in UMW-OG ( UMW-OG shares ) at an issue price of RM0.80 per UMW-OG share ( Proposed Icon Acquisition ); ii. iii. iv. Proposed acquisition of 37,087,725 ordinary shares of RM1.00 each in Orkim Sdn Bhd ( Orkim ), representing approximately 95.5% equity interest in Orkim, for a cash consideration of RM472,725,000 ( Proposed Orkim Acquisition ); Proposed Mandatory General Offer ( MGO ) for all the remaining Icon shares not already owned by UMW-OG and persons acting in concert with it after the Proposed Icon Acquisition including all new Icon shares that may be issued prior to the closing of the proposed MGO arising from the exercise of outstanding options granted pursuant to Icon s employees share scheme; Proposed Renounceable Rights Issue of new UMW-OG shares together with Free Detachable Warrants to raise gross proceeds of approximately RM1.8 billion; v. Proposed increase in Authorised Share Capital of UMW-OG from RM2,500,000,000 comprising 5,000,000,000 UMW-OG shares to RM5,000,000,000 comprising 10,000,000,000 UMW-OG shares; and vi. Proposed amendments to the Memorandum of UMW-OG.

122 UMW OIL & GAS CORPORATION BERHAD 182 ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS 39. SUBSEQUENT EVENTS (CONT D.) Subsequently on 13 February 2017, UMW-OG announced that Wan Izani bin Wan Mahmood ( WIWM ) and Khoo Chin Yew ( KCY ), being the minority shareholders of Orkim, had accepted UMW-OG s offers by entering into the following agreements: i. Conditional share purchase agreement for the purchase of 970,883 Orkim Shares held by WIWM, representing 2.5% equity interest in Orkim, for a cash consideration of RM12,375,000; and ii. Conditional share purchase agreement for the purchase of 776,706 Orkim Shares held by KCY, representing 2.0% equity interest in Orkim, for a cash consideration of RM9,900,000. The completion of the above proposals are subject to certain conditions being fulfilled, waived or completed, which include the following: i. Approval from the shareholders of UMW-OG; ii. iii. iv. Consent of the lenders of UMW-OG; Approval of the Securities Commission for the Proposed Orkim Acquisition, if required; and Results of the due diligence being satisfactory to all parties involved.

123 ANNUAL REPORT UMW OIL & GAS CORPORATION BERHAD 40. SUPPLEMENTARY INFORMATION - BREAKDOWN OF (ACCUMULATED LOSSES)/RETAINED PROFITS INTO REALISED AND UNREALISED The breakdown of the (accumulated losses)/retained profits of the Group and of the Company as at 31 December 2016 into realised and unrealised profits is presented in accordance with the directive issued by Bursa Malaysia Securities Berhad dated 25 March 2010 and prepared in accordance with Guidance on Special Matter No. 1, Determination of Realised and Unrealised Profits or Losses in the Context of Disclosure Pursuant to Bursa Malaysia Securities Berhad Listing Requirements, as issued by the Malaysian Institute of Accountants, as follows: Total (accumulated losses)/retained profits of the Company and its subsidiaries: Group Company RM 000 RM 000 RM 000 RM Realised (1,313,613) 846,786 (146,920) 103,167 - Unrealised (17,318) (2,480) (10,246) 27,129 (1,330,931) 844,306 (157,166) 130,296 Total share of retained profits from associate: - Realised 2,468 1,619 Total (accumulated losses)/retained profits (1,328,463) 845,925 (157,166) 130,296 Add/(less): Consolidation adjustments 295,334 (701,675) Total (accumulated losses)/retained profits as per financial statements (1,033,129) 144,250 (157,166) 130,296

124 UMW OIL & GAS CORPORATION BERHAD 184 ANNUAL REPORT 2016 LIST OF PROPERTIES PROPERTY OWNED BY THE GROUP As at 31 December 2016 The details of land and buildings owned by the Group are set out below: Location Description Existing Use Date of issuance of CCC (1) or equivalent Built-up area/land area (Sq. Metres) Restriction in interest Net Book Value UMW Oilfield Services (Tianjin) Co., Limited ( UOS-TJ ) Jin Kai (Gua) No , West Zone of Tianjin Development Zone, to the north of South Street and Greenbelt, to the south of Zhongnan fourth Street, to the east of Planning Use Land, and to the west of Xiaqing Road and Greenbelt, People s Republic of China No. 101, Central South Fourth Street, Tianjin Economic- Technological Development Area West Zone, Tianjin, People s Republic of China Industrial land comprising a detached factory (including warehouse, workshop, administration office and restroom), a guard house and a 3-storey research and development building (including canteen, exhibition room, meeting room, research room and office) Currently used as the operating base for UOS-TJ s business 25 June 2013 Refer to note (2) 6,564/ 13,909 Nil RMB3,886,643 (RM2,514,658) (Land) RMB30,899,424 (RM19,991,927) (Building) Refer to note (3) Leasehold for a period of 50 years, expiring on 2061 Notes: (1) Certificate of completion and compliance or certificate of fitness for occupation issued by the local authorities. (2) Property Ownership and Land Use Right Certificate ( POLUR Certificate ) dated 25 June 2013 issued by the Tianjin Municipal People s Government and the Land Resources and Property Administration Bureau of Tianjin to UOS-TJ. (3) Based on the rate of RMB1 = RM0.647 as at 31 December 2016.

125 ANNUAL REPORT UMW OIL & GAS CORPORATION BERHAD NOTICE OF ANNUAL GENERAL MEETING NOTICE IS HEREBY GIVEN that the 7 th Annual General Meeting ( AGM ) of UMW Oil & Gas Corporation Berhad will be held at Dewan Tun Abdul Razak, Menara Kembar Bank Rakyat, No. 33, Jalan Rakyat, Kuala Lumpur, Malaysia on Monday, 15 May 2017 at a.m. for the following purposes: AS ORDINARY BUSINESS 1. To receive the Audited Financial Statements for the financial year ended 31 December 2016 and the Reports of the Directors and Auditors thereon. Please refer to Explanatory Note A 2. To reelect the following Directors, each of whom retires by rotation in accordance with Article 107 of the Company s Articles of Association and who being eligible offer themselves for reelection: (i) Cheah Tek Kuang (ii) Rohaizad bin Darus Ordinary Resolution 1 Ordinary Resolution 2 Tan Sri Asmat bin Kamaludin retires as a Director at the conclusion of this 7 th AGM. Please refer to Explanatory Note B 3. To reelect Dato Abdul Rahman bin Ahmad who retires in accordance with Article 113 of the Company s Articles of Association and who being eligible offers himself for reelection. Please refer to Explanatory Note C 4. (i) To approve the payment of Directors fees for the financial year ended 31 December (ii) To approve the payment of Non-Executive Directors fees from 1 January 2017 to the 8 th AGM of the Company. (iii) To approve the payment of Directors remuneration (excluding Directors fees) to the Non-Executive Directors up to an amount of RM723,930 from 1 January 2017 until the 8 th AGM of the Company. Please refer to Explanatory Note D 5. To reappoint Messrs. Ernst & Young as the Company s Auditors for the year ending 31 December 2017 and to authorise the Board of Directors to determine their remuneration. Please refer to Explanatory Note E Ordinary Resolution 3 Ordinary Resolution 4 Ordinary Resolution 5 Ordinary Resolution 6 Ordinary Resolution 7 AS SPECIAL BUSINESS To consider, if thought fit, to pass the following motion as Ordinary Resolution with or without modifications: 6. Proposed Renewal of Shareholders Mandate for Recurrent Related Party Transactions of a Revenue or Trading Nature ( Proposed Renewal of Shareholders Mandate ).

126 UMW OIL & GAS CORPORATION BERHAD 186 ANNUAL REPORT 2016 NOTICE OF ANNUAL GENERAL MEETING THAT the mandate granted by the shareholders of the Company on 17 May 2016 pursuant to Paragraph of the Main Market Listing Requirements ( MMLR ) of Bursa Malaysia Securities Berhad ( Bursa Malaysia ), authorising the Company, its subsidiaries or any of them (the Group ) to enter into the recurrent transactions of a revenue or trading nature as set out in Section 1.3 of the Circular to Shareholders dated 21 April 2017 ( Circular ), with the Related Parties as described in the Circular, which are necessary for the day-to-day operations of the Group, be and are hereby renewed, provided that such transactions are carried out in the ordinary course of business, made on arm s length basis and on normal commercial terms which are not more favourable to the Related Parties than those generally available to the public and not detrimental to the minority shareholders of the Company. Ordinary Resolution 8 AND THAT such authority conferred by such renewed mandate shall continue to be in force until: a. the conclusion of the 8 th AGM of the Company following this AGM, at which time it will lapse, unless the authority is renewed by a resolution passed at the general meeting; b. the expiration of the period within which the next AGM is required to be held pursuant to Section 340 (2) of the Companies Act 2016 ( CA 2016 ) but shall not extend to such extension as may be allowed pursuant to Section 340 (4) of the CA 2016; or c. revoked or varied by resolution passed by the shareholders of the Company in a general meeting of the Company, whichever is the earlier. AND THAT authority be and is hereby given to the Directors of the Company to complete and do all such acts and things (including executing such documents as may be required) as they may consider expedient or necessary to give effect to the Proposed Renewal of Shareholders Mandate. AND FURTHER THAT the estimates given on the Recurrent Related Party Transactions specified in Section 1.3 of the Circular being provisional in nature, the Directors or any of them be and are hereby authorised to agree to the actual amount or amounts thereof, provided always that such amount or amounts comply with the review procedures set out in Section 1.5 of the Circular. Please refer to Explanatory Note F 7. To transact any other ordinary business for which due notice has been given in accordance with the CA 2016 and the Company s Articles of Association. By Order of the Board LEE MI RYOUNG (MAICSA ) Company Secretary Kuala Lumpur 21 April 2017

127 ANNUAL REPORT UMW OIL & GAS CORPORATION BERHAD NOTES: 1. A member of the Company entitled to attend and vote at the meeting may appoint a proxy to attend and vote in his/her stead. A proxy may but need not be a member of the Company. 2. The instrument appointing a proxy must be in writing under the hands of the appointer or his attorney duly authorised in writing or, if such appointer is a corporation, under its common seal or that of an officer or attorney duly authorised. If the Form of Proxy is signed under the hand of an officer duly authorised, it should be accompanied by a statement reading signed as authorised officer under Authorisation Document which is still in force, no notice of revocation having been received. If the Form of Proxy is signed under the attorney duly authorised, it should be accompanied by a statement reading signed under Power of Attorney which is still in force, no notice of revocation having been received. A certified true copy of the Authorisation Document or the Power of Attorney, which should be valid in accordance with the laws of the jurisdiction in which it was created and is exercised, should be enclosed. 3. A member shall not be entitled to appoint more than one proxy. 4. Where a member of the Company is an authorised nominee as defined under the Securities Industry (Central Depositories) Act 1991, it may appoint a proxy in respect of each securities account it holds with ordinary shares of the Company standing to the credit of the said securities account. Every appointment submitted by an authorised nominee as defined under the Securities Industry (Central Depositories) Act 1991, must specify the CDS Account Number. 5. The instrument appointing the proxy, together with the duly registered Power of Attorney referred to in Note 2 above, if any, must be deposited at the office of the registrar, Securities Services (Holdings) Sdn Bhd at Level 7, Menara Milenium, Jalan Damanlela, Pusat Bandar Damansara, Damansara Heights, Kuala Lumpur, Malaysia, not less than 24 hours before the time appointed for the taking of the poll, or any adjournment thereof. 6. For the purpose of determining a member who shall be entitled to attend the 7 th AGM, the Company shall be requesting Bursa Malaysia Depository Sdn Bhd, in accordance with Article 69(2)(b) of the Company s Articles of Association and Section 34(1) of the Securities Industry (Central Depositories) Act 1991 to issue a General Meeting Record of Depositors as at 8 May Only a depositor whose name appears on the General Meeting Record of Depositors as at 8 May 2017 shall be entitled to attend the said meeting or appoint a proxy to attend and/or vote in his/her stead.

128 UMW OIL & GAS CORPORATION BERHAD 188 ANNUAL REPORT 2016 NOTICE OF ANNUAL GENERAL MEETING EXPLANATORY NOTES TO THE AGENDA: Explanatory Note A This agenda item is intended for discussion only as Section 340(1)(a) of the CA 2016 does not require a formal approval of the shareholders for the Audited Financial Statements of the Company and hence is not put forward for voting. Explanatory Notes B and C Article 107 of the Company s Articles of Association expressly states that in every subsequent AGM, one-third of the Directors for the time being or the number nearest to one-third with a minimum of one, shall retire from office and the retiring Directors shall be eligible to seek reelection thereof. Article 113 of the Company s Articles of Association provides that any Director so appointed shall hold office only until the next AGM and shall be eligible for reelection. Cheah Tek Kuang, Rohaizad bin Darus and Dato Abdul Rahman bin Ahmad are standing for reelection as Directors of the Company and being eligible, had offered themselves for reelection at this AGM. The Board agreed with the Board Nomination Committee s recommendation that the above Directors are eligible to stand for reelection respectively, based on the results of their individual assessment. Each Independent Non-Executive Director has provided his annual declaration of independence in the fourth quarter of Tan Sri Asmat bin Kamaludin was reelected as Director of the Company at the 6th AGM of the Company held on 17 May 2016 to hold office until the conclusion of the 7 th AGM of the Company. Tan Sri Asmat will not seek reelection as he retires as a Director of the Company at the conclusion of this 7 th AGM. Hence, he will retain office until the close of the 7 th AGM. Explanatory Note D Article 100 of the Company s Articles of Association provides that the Directors remuneration shall be determined by a fixed sum by an ordinary resolution of the Company in general meeting. Section 230(1) of the CA 2016 provides that the fees of directors and any benefits payable to the directors of a listed company and its subsidiaries shall be approved at a general meeting. In this respect, the Board agreed that the shareholders approval shall be sought at the 7 th AGM in three separate resolutions as below: (i) Ordinary Resolution 4 - The Board is recommending that the shareholders approve the payment of Directors fees for the financial year ended 31 December 2016 as disclosed in page 158 of the 2016 Annual Report. (ii) Ordinary Resolution 5 - On 13 January 2016, the Board has approved a reduction of 10% of Non-Executive Director s fee (i.e. RM8,000) and reduction of the Chairman s fee by RM16,000 in view of the challenging oil and gas market for the year The Board is recommending that the shareholders approve the payment of Directors fees based on the reduced fees structure as follows: Period Chairman Non-Executive Directors 1 January 2017 to 7 th AGM RM12,000 per month RM6,000 per month 7 th AGM to 8 th AGM RM144,000 per annum RM72,000 per annum

129 ANNUAL REPORT UMW OIL & GAS CORPORATION BERHAD (iii) Ordinary Resolution 6 The Directors remuneration (excluding Directors fees) comprise benefits-in-kind and other emoluments payable to the Non-Executive Directors, details of which are as follows: Description Chairman Non-Executive Directors Benefits-in-kind Other emoluments (i) Meeting Allowance (per meeting) - Board - Board Committees (ii) Per Diem (per day) Medical coverage, travel & communication leave passage and other claimable benefits RM1,500 RM500 Medical coverage, travel & communication, and other claimable benefits RM1,000 RM500 Note: President/Executive Director does not receive any Directors Remuneration. Payment of Non-Executive Directors remuneration will be made by Company on a monthly basis and/or as and when incurred. Explanatory Note E Pursuant to Section 271(4)(a) of the CA 2016, shareholders are required to approve the reappointment of auditors who shall hold office until the conclusion of the next AGM and to authorise the directors to determine their remuneration thereof. The present Auditors, Messrs. Ernst & Young has indicated their willingness to continue its services for another year. The Board Audit Committee and the Board have considered the reappointment of Messrs. Ernst & Young as Auditors of the Company having undertook an annual assessment of the suitability and independence of the external auditors and have collectively agreed that Messrs. Ernst & Young has met the relevant criteria prescribed by Paragraph of the MMLR of Bursa Malaysia. Explanatory Note F In accordance with Paragraph of the MMLR of Bursa Malaysia, a listed issuer may seek a mandate from its shareholders for Recurrent Related Party Transactions. The Board proposes to renew the mandate granted by the shareholders of the Company at the previous AGM of the Company held on 17 May The Proposed Renewal of Shareholders Mandate will enable the Company and its subsidiaries to enter into any recurrent related party transactions of a revenue or trading in nature which are necessary for the day-to-day operations of the Company and its subsidiaries, involving related parties as detailed in the Circular to Shareholders dated 21 April STATEMENT ACCOMPANYING NOTICE OF ANNUAL GENERAL MEETING Pursuant to Paragraph 8.27(2) of the MMLR of Bursa Malaysia. Details of Directors seeking reelection/reappointment as mentioned in the Notice of AGM are set out in their respective profiles appearing on pages 18 to 22 of this Annual Report. Directors interests in the securities of the Company are disclosed on page 9 of this Annual Report.

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131 FORM OF PROXY I/We (NAME AS PER NRIC / PASSPORT / CERTIFICATE OF INCORPORATION IN CAPITAL LETTERS) with (New NRIC No.) / (Old NRIC No.) / (Passport No.) / (Company No.) of (FULL ADDRESS IN CAPITAL LETTERS) being a member of UMW OIL & GAS CORPORATION BERHAD ( H) ( Company ) hereby appoint * (NAME AS PER NRIC / PASSPORT IN CAPITAL LETTERS) with (New NRIC No.) / (Old NRIC No.) / (Passport No.) or * of the Chairman of the Meeting, (FULL ADDRESS IN CAPITAL LETTERS) (*Please tick one box only) as my/our proxy to vote for me/us and on my/our behalf at the 7 th Annual General Meeting ( AGM ) of the Company to be held at Dewan Tun Abdul Razak, Menara Kembar Bank Rakyat, No. 33, Jalan Rakyat, Kuala Lumpur, Malaysia on Monday, 15 May 2017 at a.m. or at any adjournment thereof. My/Our proxy is to vote as indicated below: (Please indicate with an X in the appropriate box against each resolution how you wish your proxy to vote. If no instruction is given, this form will be taken to authorise the proxy to vote at his/her discretion). ORDINARY RESOLUTIONS For Against To reelect Cheah Tek Kuang in accordance with Article 107 of the Company s Articles of Association Ordinary Resolution 1 To reelect Rohaizad bin Darus in accordance with Article 107 of the Company s Articles of Association Ordinary Resolution 2 To reelect Dato Abdul Rahman bin Ahmad in accordance with Article 113 of the Company s Articles of Association Ordinary Resolution 3 To approve the payment of Directors fees for the financial year ended 31 December 2016 Ordinary Resolution 4 To approve the payment of Non-Executive Directors fees from 1 January 2017 to the 8 th AGM Ordinary Resolution 5 To approve the payment of Directors remuneration (excluding Directors fees) to the Non-Executive Directors up to an amount of RM723,930 from 1 January 2017 until the 8 th AGM Ordinary Resolution 6 To reappoint Messrs. Ernst & Young as the Company s Auditors for the year ending 31 December 2017 and to authorise the Directors to fix their remuneration Ordinary Resolution 7 SPECIAL BUSINESS For Against Proposed renewal of Shareholders Mandate for Recurrent Related Party Transactions of a Revenue or Trading Nature Ordinary Resolution 8 Dated this day of 2017 Name of Member (If the appointor is an attorney or a corporation please see Note 2 below) Signature of Member(s) / Common Seal CDS Account No. No. of Ordinary Shares Held

132 Notes: 1. A member of the Company entitled to attend and vote at the meeting may appoint a proxy to attend and vote in his/her stead. A proxy may but need not be a member of the Company. 2. The instrument appointing a proxy must be in writing under the hands of the appointer or his attorney duly authorised in writing or, if such appointer is a corporation, under its common seal or that of an officer or attorney duly authorised. If the Form of Proxy is signed under the hand of an officer duly authorised, it should be accompanied by a statement reading signed as authorised officer under Authorisation Document which is still in force, no notice of revocation having been received. If the Form of Proxy is signed under the attorney duly authorised, it should be accompanied by a statement reading signed under Power of Attorney which is still in force, no notice of revocation having been received. A certified true copy of the Authorisation Document or the Power of Attorney, which should be valid in accordance with the laws of the jurisdiction in which it was created and is exercised, should be enclosed. 3. A member shall not appoint more than one proxy. 4. Where a member of the Company is an authorised nominee as defined under the Securities Industry (Central Depositories) Act, 1991, it may appoint a proxy in respect of each securities account it holds with ordinary shares of the Company standing to the credit of the said securities account. 5. The instrument appointing the proxy must be deposited at the office of the Company s registrar, Securities Services (Holdings) Sdn. Bhd. at Level 7, Menara Milenium, Jalan Damanlela, Pusat Bandar Damansara, Damansara Heights, Kuala Lumpur, Malaysia, not less than 24 hours before the time appointed for the taking of the poll or any adjournment thereof. 6. For the purpose of determining a member who shall be entitled to attend the meeting, the Company shall be requesting Bursa Malaysia Depository Sdn Bhd, in accordance with Article 69(2)(b) of the Company s Articles of Association and Section 34(1) of the Securities Industry (Central Depositories) Act, 1991, to issue a General Meeting Record of Depositors as at 8 May Only a depositor whose name appears on the General Meeting Record of Depositors as at 8 May 2017 shall be entitled to attend the said meeting or appoint a proxy to attend and/or vote in his/her stead. 1. Fold here THE REGISTRAR OF UMW OIL & GAS CORPORATION BERHAD Company No. : H AFFIX STAMP SECURITIES SERVICES (HOLDINGS) SDN. BHD. Level 7, Menara Milenium, Jalan Damanlela, Pusat Bandar Damansara, Damansara Heights, Kuala Lumpur, Malaysia 2. Fold this flap to seal

133 UMW Oil & Gas Corporation Berhad ( H) Level 18, Block 3A, Plaza Sentral, Jalan Stesen Sentral 5, Kuala Lumpur, Malaysia